What does Voluntary Delisting Tell us about Corporate Governance in Kuwait?


Despite the adoption of the mixed approach in the application of corporate governance (CG), largely based on the ‘comply or explain’ principle, the Kuwaiti corporate governance system still faces major limitations that have become particularly noticeable from the event of voluntary delisting by a slew of companies after the new Kuwaiti Code of Corporate Governance (KCCG) came into force in 2015. One apparent limitation is caused by the widespread culture of non-compliance, an observation supported by the Capital Market Authority Report on Voluntary Delisting from 2010 to 2016. Empirical analysis was conducted on a sample of 29 companies, all of which were delisted during application of the new KCCG of 2015 until April 2020. This voluntary delisting also indicates other salient limitations such as deficiencies in the CG legal framework, the asymmetrical concentration of share ownership in the hands of larger shareholders, and the passivity of shareholders in Kuwaiti-listed shareholding companies.


Introduction
The corporate governance framework in Kuwait has evolved significantly over the past decade. It requires an extensive examination to cover the dearth of studies about the effectiveness of this framework. The legal framework 5 The voluntary delisting and corporate governance in Kuwait Arab Law Quarterly 35 (2021) 1-57 deficiency in the CG system. The CMA study notes that one common reason for companies withdrawing from the list was the strict CG requirements of KCCG 2013, as is explored below. However, the continuous withdrawal of companies indicates some flow in the CG system. Therefore, this section examines the phenomenon of voluntary withdrawal from the Kuwait Boursa during application of the old KCCG 2013 and the new KCCG 2015.

Voluntarily Delisting during Application of the KCCG 2013
In December 2016, the CMA held an Awareness Workshop about the voluntary event in the Kuwait Boursa to share the results of its Report;10 the Authority emphasised the important role of the CMA in raising awareness and encouraging companies and investors to be listed on the Kuwaiti Boursa.11The CMA Report studied 42 companies that had delisted from the market since the establishment of the CMA in 2010 until December 2016.12 It found that 17 companies had voluntarily withdrawn from the stock exchange after the approval of at least 51% of their general assemblies.13 The CMA presented the reasons provided by the boards of directors of the companies that withdrew, which led to voluntary exiting from the market.14 These reasons concerned the declining classification of the Kuwaiti Boursa, the high cost of listing fees, the stringent provision of mandatory acquisition, and, most importantly, the high cost of application of the CG code. 15 However, the CMA only placed merit on the last two reasons.16 First, the CMA's insistence on enforcing the mandatory takeover provisions represented 10 There is a shortage of written data from the CMA because they did not publish the results of the report concerning the voluntarily withdrawal. However, the official CMA website provides the general results in a PowerPoint presentation in the scientific material and in a video available on the official channel of the CMA; these are the only available resources showing CMA's complete opinion about the problem of voluntarily withdrawal. Thus PowerPoint_Workshop, slide 9. 14 Ibid., slide 15. 15 Ibid. 16 Ibid., slide 20. a reasonable ground for most companies' withdrawal from the Boursa.17 Under the mandatory takeover provisions, a shareholder who acquires more than 30% of a listed company's shares is required to submit an offer to purchase all the remaining shares.18 Some investors who own 30% or more of a company do not have the desire or the financial ability to buy the company, but, at the same time, cannot scale down their stake. 19 The CMA Report suggested that the decision to voluntarily delist was made by an alliance of investors subject to mandatory takeover provisions and 'dominant groups' of shareholders to avoid the obligations under the mandatory takeover provisions.20 The CMA considered the problems surrounding the mandatory takeover provisions when issuing the new regulations of Law No. 7 of 2010.21 In particular, the Authority considered and applied international best practice in regulating the Executive Bylaws-Module 9, Mergers and Acquisitions (Articles 3-5-1 and 3-6).22 Accordingly, since the new regulations have been introduced, the CMA has managed 15 cases that have been exempted from the mandatory takeover provisions, where it has decided to reschedule the percentage of the sale and purchase of the controlling shares of the listed companies, consistent with Kuwaiti market conditions.23 Thus, the CMA believes that the mandatory takeover provisions are no longer a legitimate reason for companies to exit the Boursa.24 Second, and perhaps more significantly, the CMA found that the most frequently cited reason for withdrawal in the requests to delist voluntarily concerned the application of corporate governance.25 The CMA Report estimated that the financial cost the companies bore to meet the requirements ranged from 150 000 to 300 000 Kuwaiti dinars (KD), depending on the size of the company.26 The cost is considered rather high, especially for companies making small profits.27 However, the CMA believed that the problem had been solved under the new KCCG 2015, which adopted a piecemeal approach to corporate governance rules based on the 'comply or explain' approach. 28 Thus, 17 Video_Workshop, supra note 11 at 30:00. 18 Kuwait, CMA Executive Bylaws, Module 9: Mergers and Acquisitions 2015, Article 3-5-1. 19 Video_Workshop, supra note 11 at 30:37-30:53. 20 Ibid., 30:58 to 31:09. 21 PowerPoint_Workshop, supra note 12 at slide 20. 22 Ibid., slide 21. 23 Ibid. 24 Video_Workshop, supra note 11 at 31:26-31:30. 25 Ibid., 30:19-30:28. 26 Ibid., 31:38-31:53. 27 Ibid., 31:54-32:06. 28 PowerPoint_Workshop, supra note 12 at slide 21.
the CMA Report removed the strict application of the CG code as a reason for companies to continue alienating from the market.29 Finally, the CMA Report discussed how the phenomenon of voluntary delisting reflected the mind-set and the stereotype of most companies in Kuwait. If a company makes stable profits, has no plans to extend its business, and, most importantly, has its share of ownership concentrated in the hands of the dominant groups, then the company's shares would not be tradable.30 Since their shares are not tradable, the company prefers to distance itself from the exchange so that it is protected from the supervising authority and any legal obligations.31 These three factors create a mind-set similar to the 'family' company in Kuwait, that sees no benefit in being listed on the exchange,32 especially considering that 35% of voluntarily delisted companies in the CMA Report that were meeting the listing requirements of the Boursa still chose to delist. 33 To sum up, the first CG code (KCCG 2013) did not provide a successful approach to corporate governance. The strict approach to the application of corporate governance discouraged companies from listing on the market, rather than encouraging them to voluntarily delist to avoid the expensive requirements of the CG code. However, the most important question raised is: Will changing the approach to a more recognisable and flexible approach be sufficient, especially when there is already a prevailing non-compliance culture among companies in Kuwait?

2.2
Voluntarily Delisting during Application of the KCCG 2015 As suggested earlier, companies faced challenges in applying such a 'hard code' approach to corporate governance: the research content that the voluntary delisting was one of the challenges of the old approach. These challenges drove the move to recalibrate the application of corporate governance from a hard approach to a more flexible one. The CMA issued a new CG code (KCCG 2015), which adopted a hybrid approach, comprising both compulsory and optional rules.34 The enforcement approach of the optional rules is generally 29 Video_Workshop, supra note 11 at 32:40-32:47. 30 Ibid. based on the 'comply or explain' principle.35 According to this approach, companies subject to corporate governance have two options: to fulfil the requirements of this code and reveal the degree of their compliance in CG reports or disclose every rule not complied with and justify in great detail the reasons behind their non-compliance.36 However, enforcement of the compulsory rules stands within the 'commitment and compliance' approach to which these rules pertain as follows: a. board member independence; b. integrity of financial reporting; c. robust risk management and internal audit systems; d. ensuring timely and high-quality disclosure and transparency; and e. respecting shareholders' rights.37 The latter approach means that companies are subject to penalties in cases of non-compliance.38 Under the new KCCG 2015, the application of corporate governance is mainly based on the 'comply or explain' principle, with certain narrow exceptions, which apply a binding approach. Thus, the new Kuwaiti code is not fully voluntary, but rather contains voluntary and compulsory rules, namely a mix of soft and hard law.
Surprisingly, in 2017, 20 companies delisted from the Boursa.39 As shown in Figure 2, this was a dramatic increase in the number of delisted companies in comparison to the previous and subsequent years. What is also surprising is that 18 of the 20 companies voluntarily delisted from the market. 40 To understand how large this number is, consider that 17 companies delisted between 2010 and 2016, a 7-year period. It is crucial to emphasise that 2017 was the year after the mixed-approach KCCG 2015 came into force. The fact that companies continued to exit from the market even after adoption of a more 35 Most of the GCC countries have adopted the 'comply or explain' approach in their codes; however, the UAE did not as their code approach is based on mandatory compliance ('comply or pay penalty' voluntarily withdrew from the market. In addition, two companies in the sample were compulsorily delisted by the CMA. In addition, one company delisted from the Boursa due to liquidation. The capital of the delisted companies, operating in different sectors, ranged from less than 10 million KD to 200 million KD. The sample was collected from the Boursa's official website, from a total of 52 delisted companies added on the website between 2012 and April 2020. Thus, the sample represents 55.7% of the total number of delisted companies. Important questions related to this sample are: 1. How many companies voluntarily delisted from the Boursa? 2. How many companies did not submit a first CG report in 2016? 3. How many companies did not attend the Corporate Governance Awareness Workshop organised by the CMA? 4. How many companies were sanctioned by the CMA? 5. How many companies are no longer within the scope of applying the KCCG 2015? Are the companies still licensed? 6. How many voluntarily delisted companies are registered on the over-thecounter (OTC) market? 3.1.2 The Analysis As shown in Table 1, 26 out of 29 companies voluntarily exited from the market; this represents 89.6% of the total number of delisted companies in the sample. This research divides the non-compliance culture in Kuwaiti context into two aspects: the lack of discipline and education, and alienation from the scope of corporate governance. The available evidence concerning the first aspect is the list of companies that did not submit an CG Annual Report, the record of the CMA concerning the sanctions imposed on companies and the list of companies that did not attend the CG Awareness Workshop. Meanwhile, the second aspect is supported by examining the lists of CMA-licensed companies and the list of companies registered on the OTC. 1.
Examination of the first aspect: lack of discipline and education a.

3.1.3
Observations Despite the limited information available regarding this matter, it appears that a substantial number of the voluntarily delisted companies in the sample were sanctioned by the CMA for violating different legal requirements, including the main one for assessing the competence of the CG approach: i.e., submitting a CG report. Because the success of this approach relies on the companies themselves and other business parties to act with integrity in applying the code,61 it is difficult to assess the KCCG 2015 due to the lack of GC reports. Also, a substantial number of voluntarily delisted companies did not attend the CMA Awareness Workshop, which was one of the CMA's efforts to educate companies about corporate governance. However, some companies were not interested. Thus, most of the voluntarily delisted companies were lacking in discipline and education about CG requirements.
Three companies (MHC, EYAS and IKARUS) in the sample stated 'difficulty in complying with the CG rules' as one of the reasons for delisting from the Boursa.62 However, this research claims that a non-compliance culture exists 58 Available online at https://www.mubasher.info/news/3215435/--

Withdrawal of EYAS for Academic and Technical Education from the Stock Exchange
across all voluntarily delisted companies rather than claiming that this is the main reason why some companies delist. For example, the Board of Directors of GYPSUM announced that the company was voluntarily delisted because it was unable to raise its capital to 10 million KD and increase its number of shareholders to 200 and that the trading level on its shares was low.63 Still, because GYPSUM did not submit a CG report, it was sanctioned with a warning.64 The company was also fined at least 1,000 KD for not establishing a risk management office and an internal audit office in accordance with CG requirements.65 Thus, the delisted companies were not fully complying with the rules due to the existence of a non-compliance culture. It also appears that a substantial number of voluntarily delisted companies were not licensed by the CMA, and, therefore, were outside the scope of corporate governance. Most importantly, many voluntarily delisted companies are now registered on the OTC. The conclusion could be drawn that their withdrawal could be linked to a non-compliance culture. The prevalence of such a culture is an important aspect in calling for the adoption of a CG change. This would be especially important because, if a proper change is not introduced, this culture will continue to reflect the flows in the CG system.

Deficiencies in the Legal Framework of Corporate Governance
As demonstrated earlier, the CG legal framework in Kuwait relies on the Kuwaiti Companies Law of 2016 and the CMA Executive Bylaws (most importantly Module 15, KCCG 2015) as a main resource and guideline for CG best practices. Yet the continuous voluntary delisting of companies indicates deficiencies in the CG legal framework.

3.2.1
Deficiency in the Code Approach Recalibration of CMA's enforcement of the CG code from a 'binding' to a 'mixed' approach based on a 'comply or explain' concept could be considered a 'good step' toward effective corporate governance. As shown in Figure 3   countries in the Middle East region have adopted the mixed approach, including Kuwait, Saudi Arabia, the UAE DIFC, and Palestine. Hence, the mixed approach is well known in the Middle East region. However, as demonstrated earlier, many companies are still removing themselves from the Boursa. The continuous trend to delist voluntarily indicates that there are many flaws in Kuwait's CG approach. First, the current adoption of the approach does not differentiate between small-to medium-sized companies and large companies. The KCCG 2015, similarly to KCCG 2013, does not provide different provisions for different company sizes. This distinction was not well considered in the former code since it was apparent that the CMA's Report downplayed voluntary withdrawal because it only included small-to medium-sized companies.66 Unfortunately, the CMA again neglected to consider company size when drafting the current code, contradicting the idea of 'one size does not fit all' that 66 PowerPoint_Workshop, supra note 12 at slide 13. aligned with the concept of 'comply or explain' .67 The CMA may need to look at and follow other countries in the MENA region, which have issued CG codes that take into account the differences in the types and sizes of companies.68 For example, Morocco regulates companies by issuing separate CG codes to regulate different types of listed companies: namely, small-and medium-sized enterprises (SMEs), family-owned companies, state-owned enterprises (SOEs) and credit establishments.69 Second, CMA's role in disclosing the level of company compliance is confusing. The CMA has only once addressed the percentage of companies which fulfil the requirement of the KCCG 2015.70 The 6th Annual Report (2016-2017) reveals that 67 out of 203 companies submitted a GC report, fulfilling its requirements.71 This means that 33% of companies provided a sufficient explanation where there was non-compliance, which is rather a low percentage. Here, the CMA only counted the companies which had submitted a GC report and assigned a percentage that appears to be relatively high, as shown in Table 2. However, it only indicates the decline in the total number of companies subject to corporate governance, as shown in Figure 4. The CMA did not provide information on companies that fulfilled all the Report's requirements Ibid. according to the forms approved by the CMA in their later annual reports. This results in a shortcoming in the available statistics, indicating a difficulty in evaluation if the approach is functioning effectively in practice.72 Thus, it casts doubt on whether the approach is effective. Third, and perhaps most importantly, the approach does not appear flexible enough to recognise the existing non-compliance culture that prevails among delisted companies in Kuwait, as seen in the CMA Report and the sample examined in this research. Within this culture, companies prefer to be removed from any financial and/or legal obligations imposed by the regulatory and supervisory authorities of stock markets.73 This includes disclosure of their material information and provision of financial statements in accordance with 'Module 10: Disclosure and Transparency' , paying subscription fees, and adhering to the CG rules.74 This leads to companies exiting from the Boursa and, instead, choosing to be on the OTC, a stock exchange with no CG requirements.75 As demonstrated in Fig. 4 35 companies that delisted and moved beyond the scope of the former KCCG 2013. This shows that the problem of companies removing themselves from the market has become more serious, yet this is not recognized within the current approach. Thus, it raises concerns about the effectiveness of the approach in fulfilling its aims. It is plausible to suggest that Kuwait should adopt a 'gradual regulatory tightening' , similar to other regional countries, such as Saudi Arabia and Egypt.76 Such an approach aims to raise the awareness of listed companies, as well as to cultivate the sophistication of governance rules.77 A gradual regulatory tightening occurs when the regulator starts with a more flexible approach-in Kuwait's case a fully voluntary approach by the CG-and then revises the code to be more mandatory over time.78 This approach could help deal with the culture of companies that prefer to be in a less restricted market.

3.2.2
Fragility of the KCL Provisions One of the most evident deficiencies of the CG system that manifested itself in the voluntary delisting phenomenon is the increasing number of voluntarily delisted companies that are registered on the OTC. The OTC is an automated platform for trading unlisted securities organised by the Boursa, which was also a listed company on the OTC until September 2020.79 The CMA and the Boursa do not require companies on the platform to follow disclosure requirements or other instructions-including corporate governance-imposed on companies whose shares are traded on the Boursa.80 Therefore, the CMA recommends that investors take sufficient care to study the feasibility of investing in the shares of these companies before making any investment decisions due to the risks that may surround the process of trading on this platform. 81 Despite the fact that companies registered on the OTC are outside the scope of CG application, they should follow CG rules stated in the KCL as the main source of corporate best practice. This research contends that the KCL has its shortcomings, encouraging companies to exit the market and register on the 76 Boubaker & Nguyen, supra note 68 at 543. 77 Ibid. 78 Ibid. OTC. This could be linked with the question of why companies are benefiting from listing in the OTC more than in the Boursa? First, many companies on the OTC have been able to take advantage of the poor supervisory role of the Ministry of Commerce and Industry in implementing the law. Two events strengthen this argument. (a) The KCL has authorised the supervisory bodies to adopt their CG code since 2012.82 Yet, the Ministry has not drafted a code to regulate companies registered on the OTC. (b) The law requires the Ministry to invite the general meeting of a company to convene within 15 days in cases where the board fails to call a meeting for any reason.83 That two sampled companies, MTCC and ADNC, were delisted due to failing to call their general meetings casts doubt on the role of the Ministry.84 Thus, companies can take advantage of the inadequate supervision of the OTC.
Second, under the KCL, companies are not obliged to follow many CG requirements, such as (a) requiring independence, qualifications, experiences, and technical skills in directors;85 (b) appointing auditors licensed by the CMA;86 (c) forming a risk management committee;87 (d) assigning an independent expert such as an asset valuator or investment advisor, which is not compulsory in cases where a transaction between the company and any related party equals 10% or more of the total assets;88 (e) developing a system for ensuring timely and high-quality disclosure and transparency,89 such as developing mechanisms of presentation and disclosure, including providing all stakeholders with access to timely and transparently disclose data and creating a website page about corporate governance in order to share new data and communicate with shareholders, investors, and stakeholders;90 or (f) most importantly, following the mandatory standard under the KCCG 2015 to protect shareholders' rights.91 Companies on the OTC need not follow any such provisions, including the shareholders' right to all data set out in the disclosure 82 Kuwaiti Ibid., Article 5-8. 87 Ibid., Article 6-4. 88 Ibid., Article 7-7. 89 Ibid., Article 8-1. 90 Ibid., Articles 8-8 and 8-5. 91 Ibid., Chapter 9, Rule VIII: Respect the Rights of Shareholders, from Article 9-1 to Article 9-10. record of the board members and the executive management.92 That, of course, hinders the monitoring role of the company's shareholder. Third, another shortcoming in the KCL is the fragility of the provisions concerning the responsibility of the board of directors, especially those related to the duty of loyalty. Under the KCL, a board director can engage in self-dealing or have a conflict of interest if they receive approval from the general assembly, which can also waive a director's duty to not compete with the company's business.93 This legal fragility raises two main concerns. First, when there is concentrated ownership in the hands of major shareholders, the approval around breaking these liabilities is very feasible. Second, general assembly meetings are only held on an annual basis, leaving a large gap for shareholders to monitor the board of directors.94 This can foster an irresponsible corporate attitude of a board misusing its power, including breaching the duty of loyalty towards the company.95 This structure reinforces the idea that the responsibilities of the board of directors are not well described in the regulations of the MENA countries.96 Overall, these shortcomings could imply that the KCL does not prevent the domination of a board of directors over its company, but instead provides the perfect environment for a concentration of share ownership, which negatively affects the role of ownership structure as a CG mechanism. This argument is discussed below.

Concentration of Ownership
The ownership structure is an important element when it comes to delisting, as companies with concentrated ownership and less tradable shares in a less liquid national market tend to withdraw.97 This is applicable to the Kuwaiti context as the voluntary delisting problem indicates that the concentration of ownership is one of the defining characteristics of the Kuwaiti stock market. Suggestions from the CMA Report and the sample of delisting companies are consistent with the same idea. There are many obstacles to implementing a CG 92 Ibid., Article 9-9, Point 7. 93 Kuwaiti system in Kuwait.98 It has been argued that the Kuwaiti system does not readily support good CG mechanisms.99 For example, the ownership structure is highly concentrated in the hands of a few major shareholders, and this creates problems for listed companies and shareholders.100 This type of ownership structure raises several concerns. First, the concentrated ownership in Kuwait, along with the simple legal requirements, has encouraged large shareholders to exploit the law, which can negatively affect minority rights. The 2016 CMA Report looked at 17 companies that voluntarily delisted and found that an average of three owners held more than 51% of the total shares in each of the companies.101 This gave these majority shareholders-or as the CMA calls them 'the dominant groups'-the power to control substantial decisions in the company, including withdrawing from the market. This is particularly so given that the CMA Executive Bylaws only require the approval of an ordinary general meeting for a company to delist from the market rather than the approval of the owner of at least 75% of the capital, which is the required approval for an extraordinary general meeting.102 This rule results in companies with 'dominant groups' having absolute power as it allows them to escape the strictures of the market easily. This legal situation removes a company's ownership structure as an effective mechanism of corporate governance. However, in 2021, the CMA fixed this problem by amending this rule, which now requires the approval of no less than 75% of the attendees of the general assembly for future companies seeking to voluntarily delist from the Boursa.103 This step was necessary to make it more difficult for companies to exit from the market.
Second, the high concentration of ownership in listed companies in Kuwait has created an agency problem between large shareholders and small shareholders.104 Looking to  Table 3 shows that government shareholdings increased from 13% to 15% from 2017 to 2020, whereas family shareholdings stabilised during the same period from 3% to 4%, which support that these ownerships are significant in the Kuwait market.108 A study conducted in 2009 indicated that institutional shareholders own large shares of companies in the following sectors: services (17.23%), banking (28.7%), and manufacturing (28.05%  the view that the government tends to have political motivations rather than commercial motivations in managing businesses.119 This raises the concern that the government plays no effective role in monitoring its own companies.120 Importantly, the boards of most companies in Kuwait are mainly controlled by large shareholders or families.121 Additionally, most companies have a member of the dominating family as the CEO, as the chairman of the board, and as a non-executive director.122 This has a bearing on voluntary delisting. For example, EXCH voluntarily delisted from the Boursa due to the concentration of 81% of the total shares in the hands of a single family, as it had 100% of the board's representation.123 This supports the idea that single families control the boards of most listed companies in Kuwait.124 The father takes the position of chairman of the board and, at the same time, his son or another family member takes the position of the CEO.125 That, of course, raises the concern that controlling families chose unqualified board members because they tend to select their friends and family members.126 That also supports the finding that legal frailty is empowering large shareholders to concentrate their ownership to protect their interests and wealth.127 Hence, this is why each type of ownership has a different influence as a CG mechanism.128 That is why block holders are the main players in improving corporate governance in emerging markets, including Kuwait.129 Fourth, the concertation of ownership raises the concern of the existence of owner-managed companies, which is a common CG issue in emerging markets.130 This means that the large shareholders or the founders are in 119 Ibid.,p. 198  management.131 This is applicable to the Kuwaiti context, as the voting system is based on 'one vote per share' , which enables these major shareholders to be 'insiders,' due to their substantial representation on boards.132 In practice in Kuwait, whoever owns the majority of the shares becomes the chairman of the board of directors.133 If a developing country has insufficient legal protection for outsider shareholders, original shareholders can maintain their influential positions in companies that have resulted from their concentration of ownership.134 Consequently, large shareholders are incentivised to step in to protect their interests in their companies.135 Therefore, large shareholders can use CG structures to meet their interests, and companies in Kuwait depend on an excessive level of concentrated ownership as a 'driving governance control mechanism' .136 While the large shareholders dominate positions on the boards, a minority of shareholders have no sufficient representation in the board room.137 That, of course, raises the issue of the role of minority shareholders in management and policy decision-making being diminished.138 Large shareholder domination in Kuwaiti companies creates an obstacle for shareholders to have an effective role in the CG scheme, which is discussed below.

3.4
Passive Shareholders Shareholder passivity is a well-recognised problem in MENA countries, and many believe that shareholders are not vigorous in practising their legal rights.139 Appling to Kuwaiti context, shareholder passivity is also manifested in voluntary delisting. According to the CMA Report regarding delisting, the rules permit a shareholder or shareholders who own 5% to 30% of the company's shares to submit an objection against the resolution of the general assembly.140 shareholder or a number of shareholders whose ownership percentage of shares of a Listed Company is not less than 5% and not more than 30% may submit to the Authority individually or jointly an objection of an ordinary or extraordinary general assembly, in accordance with the following conditions: (1) The objection shall be submitted within 15 days from the date of the issuance of the resolution objected to or their knowledge thereof, whichever is longer.
(2) The objecting shareholders shall not be among those who However, the Report explicitly provided that shareholders were reluctant to object to the delisting; this passivity enabled those with the concentration of ownership to make the decision move forward with delisting without resistance.141 Thus, lack of shareholder activism in Kuwait have contributed to the increasing number of companies that voluntarily delisted. This might suggest that shareholder activism could mitigate the situation. In the companies EDU, TAAMEER and HUMANSOFT, shareholders objections to the CMA actually reversed the company's delisting decision.142 However, there are two companies in the sample, NAFAIS and MHC, that eventually withdrew despite shareholders objection.143 Hence, shareholder engagements are still limited due to the concentrated ownership and the controlled nature of companies.144 This could raise the concern that the concentration of ownership has led to a domination of major shareholder over the company, leaving the minority of shareholders with no power. Looking beyond Kuwait at the Middle East region overall, shareholder activism is rare, due to the concentration in the ownership structure, social and legal traditions, and limited foreign ownership.145 Shareholder passivity in Kuwait raises two concerns. The first is that changes in corporate governance would be solely by the regulators, which is rather too slow to keep pace with the necessary developments and global trends. The second is that a lack of litigations against the board of directors have made it difficult to define the director's duties.146 This leads to no clear conception of the board's legal liability, raising an additional concern that the board does not consider their legal liabilities when making decisions.147 The aim of this section is to demonstrate that the problem of passive shareholders in Kuwaiti companies may refer to different reasons, such as those related to legal, cultural and social factors, which will be discussed below. Legal Factors It is submitted that legal protections for shareholders is important to induce activism. If the legal system is weak in protecting small shareholders, they will not be motivated to buy shares and in the end ownership becomes concentrated in the hands of dominant large shareholders.148 It has been argued that the absence of shareholder activism in Kuwait may refer to several reasons, most importantly the concentration of share ownership and management by large shareholders, the restrictions on the shareholder rights and the high percentage of shareholding required to practicing their rights.149 As shown in Fig. 5, the new KCL of 2016 requires shareholder to hold at least 5% of company's capital, which is rather a high percentage to practice important rights such as discussing matters not included in the agenda of the general meeting and requesting the Ministry to appoint an auditor to conduct an inspection of their investee company.150 Another example is that the law requires the shareholders to hold at least 25% to ask for replacement of the auditor during the year and to dissolve the board of directors or remove its chairman or any one or more of its members.151 In light of the high level of concentrated ownership, it is difficult for shareholder to own the required shareholding hence making these provision of the KCL restricting essential tools for shareholders to monitor the board of directors and hold its directors accountable. It is important to discuss in depth the main defects in the Kuwaiti legal system that hinder the role of shareholders in the company, which will be discussed below.

Insufficient Protection for Minority Shareholders in Delisted
Companies In general, minority shareholders have always been considered the most affected group when it comes to delisting.152 Withdrawal from the main market is 'the final nail in the coffin for the stock' for minority shareholders.153 And, most importantly, it invades the minority right to sell their shares at a profit, which is a constituency part of their property. withdrawal has no negative impacts on the Kuwaiti market but only harms the interest of minority shareholders.155 From the CMA perspective, this is mainly because minority shareholders can only sell their shares through the OTC market.156 That involves risk in the trading process, which is not in the interest of the minority shareholders.157 However, it could be argued that the main shortcoming of the listing rules is the failure to provide a fair price after the 155 PowerPoint_Workshop, supra note 12 at slide 24.  decision to withdrawal. Here, an argument could be made that if delisting rules encompass insufficient protection for the minorities, shareholders tend to be reluctant. That is discussed as follows.
First, the listing rules raise the concern of share price manipulation due to concentrated ownership in the hand of major shareholders. That is because in the emerging market there is the issue of a rigorous asymmetry of information between the large shareholders, the insider, and the small shareholder, the outsider.158 The rules provide that any person could offer to purchase the shares from a shareholder who is willing to sell his shares before delisting, with no less than the minimum average price of the last 6 months of trading, counting from the disclosure date of the board's recommendation to withdraw.159 From the CMA's perspective, these rules protect the rights of minority shareholders. However, there is concern that major shareholders, acting as board members, could manipulate the share price and choose the starting date of the 6 months period. Arguably, because there is a distinguishing case in Kuwait, where a Chairman of Al-Ahli Bank of Kuwait was penalised more than 5 million USD for trading insider information and manipulating the share prices.160 This happened when the chairman-the first defendant-disclosed insider information to one of his relatives-the second defendant-concerning the quantity and the timing of the offer of the bank's treasury shares.161 The Kuwaiti court fined the first defendant an amount of 2.5 million KD and return of another 2.5 million and fined the second defendant an amount of 100,0000 KD.162 This supports the statement that, in the MENA region, the potential of insider dealing increases where the board of directors own a significant stake in the listed companies. 163 Second, a 6-month price starting from a decision in the hands of the majority still did not constitute a share price that was supposed to be established through 'an independent appraisal' as recommended by the OECD.164 The old simple legal procedures in Kuwait  call for an ordinary meeting and make the decision to delist from the market. Hence, the rule was not sufficient to provide a fair price for shareholders who choose to sell their shares from the delisted company. But it could be considered more of a privilege to the majority than a protection for the minority.
Since the prevailing behaviour of local investors in the Middle East is to fear taking up battles with powerful controlling shareholders and board members representing dominant families and governmental bodies.165 With a high skill of bargaining, minority shareholders will have no problem to exit from the company politely with less than a fair price. Third, choosing the average price of the shares from the disclosure date of a company's decision to withdrawal does not constitute a fair price due to market reaction.166 Since many studies show that companies experience a drop in share price between 8.5% and 12% (a high percentage) shortly after the initial announcement of withdrawal,167 minority shareholders in Kuwait may be exposed to a substantial lost even before the delisting. This supports the former point that these provisions are benefiting the major shareholders, as to buy shares at a lower price. Hence, it is plausible to suggest that the average price should be chosen from a period before announcement of the delisting.
Fourth, the listing rules do not provide any protection for minority shareholders who lose a substantial value of their shares after the delisting. Untradeable shares become worthless once the company exits from the market.168 This drop could be linked to the fact that shares convert from being priced in the Boursa to unquoted in the OTC, raising the concern of exposing the shareholders to risk and banks requiring more guaranties.169 When applying the exit or voice theory170 in this situation, a minority shareholder will incur fewer costs 165  if he exits than if he decides to stay with unquoted shares and uncertain dividends. As the law does not provide protection for loyal shareholders, they lose the opportunity to have at least a priced share with a probability of profit. Thus, the situation is more of an invitation for minority shareholders to exit rather than to stay, as there is no sufficient surety for them to keep their shares in a delisted company. Here, minority shareholders are the most negatively affected by the withdrawal decision. The discussed shortcomings in the listing rules support the view that the prospect of voluntary withdrawal discourages investors from buying shares in the market.171 It also supports the conclusion that small shareholders tend to be reluctant when the governance system, which ordinarily encompasses legal protections, securities regulations dealing with the distribution of information, and insider trading regulations, does not provide sufficient protection for minority shareholders.172 Hence, they are discouraged from buying stocks, contributing to a concentration of ownership and shares being possessed by a few major shareholders.173 This may create a higher level of minority shareholder passivity around participating in company dealings as well as in the market as a whole.

3.4.1.2
An Unfair Voting System Theoretically, shareholders govern a company by exercising their voting rights.174 Voting rights are considered a cornerstone for shareholders to leverage their power. Through voting, shareholders are entitled to several rights under the Kuwaiti system, most importantly, electing and appointing members to the board of directors, attending the general meetings, taking part in discussions, and voting on the matters presented in these meetings.175 In general, the voting system in Kuwait is 'one vote per one share,'176 which includes all the common shares.177 At the same time, the KCL gives the right to the company's contract178 to create and distribute a class of shares referred to as 'preferred  shares' , which provide more privileges. 179 Although the rule of one vote per one share is often considered the ideal democratic rule supporting the governance structure,180 it has its own limitations in the Kuwaiti context. These limitations can diminish the role of active shareholders for the following reasons. The first reason is that, arguably, 'one vote per share' may diminish minority shareholder activism because the voting is not per shareholder, but per share.181 This means that a shareholder's proportionate rights are based on the amount of capital ownership one has.182 This leads to different positions among shareholders.183 Under the one vote per share framework, power is gained by the number of shares and not by virtue of the shareholding.184 This type of rule creates a separation of influence, but only major shareholders can earn significant influence in controlling the company's performance. 185 It has been shown that under this voting system, those who own less than a 5% holding are left with no representation on the board.186 That, of course, prevents the minority from participating in the management and the policymaking of the company. 187 A second limitation to the voting system resulted from the new laws. After 2012, the new Kuwaiti companies' law permitted companies to issue a new class of shares known as preference shares.188 These shares have more value than ordinary shares with respect to 'voting, profits, liquidation proceeds, or any other rights' given to shareholders. 189 In this scenario, the founders of a company contractually have a class of shares that enjoys the majority of voting rights. 190 The founders, thus, have the right to control the company.191 Even if they issue new shares to the public, those shares will have less than 50% of the voting rights.192 Consequently, the public is only entitled to cash flow rights, but can no longer actively contribute to electing the board members or to any other decision that controls the company. 193 Here, multiple classes of shares are used to separate the right to cash flow from the right to control.194 Specifically, the KCL permits a company in the formative stage to issue and grant preferred stock. 195 This allows founders to give themselves or other dominant groups of the company preference shares rather than common shares. Thus, a multiple share class may be used in Kuwaiti companies as a tool to separate cash flow from the control rights in order to empower the dominant large shareholders. Kuwaiti law provides that all shareholders in the same class of shares are equal.196 However, in reality, all shareholders may be equal, but some are more equal than the others. 197 A third limitation is that the Kuwaiti system has not effectively incorporated cumulative voting.198 Cumulative voting acts as a surety for minority shareholders in selecting a representative, or at least creates a greater probability of selecting one of their representatives for the board of directors.199 With cumulative voting, shareholders have the option to either focus their entire votes on a single candidate or cooperate with other fellow shareholders to elect a member to represent their views on the board.200 Here, cumulative voting can be a good method for shareholders to build alliances. That is because cumulative voting is consistent with the provision of the KCL and its executive bylaws, which allows for shareholders to 'form an alliance … to jointly appoint one or more of their representatives in the board of directors in proportion to their shareholding' .201 The latter rule has been exploited by minority shareholders in many companies in Kuwait, enabling them to join forces with other shareholders. 202 Thus, cumulative voting is an essential tool for shareholder activism in Kuwait.
However, the KCL provision only recommends that companies stipulate cumulative voting in their contract as the mechanism for electing members of the board.203 This provision is critical for two reasons. First, it gives the founder the authority to adopt this tool in the company's contact, raising the concern that he can prioritise his interest in the company when making the decision. The second is that the recommendation using cumulative voting is not conducive to initiatives that would force companies to adopt this measure. At present, the situation in Kuwait is the same as other countries in the region that have failed to mandate the use the cumulative voting but rather only recommend it as a governance best practice. 204 Thus, the same concern can be raised in the Kuwaiti context that failing to enforce the cumulative voting mechanism negatively impacts minority rights. 205 The fourth and final limitation to a fair voting system is the negative impact of domination of the major groups. For instance, cumulative voting was mandatory under the previous Companies Law No. 25 of 2012, before it was revised in 2013 in accordance with Companies Law No. 97 of 2013.206 Many claim that forcing companies to adopt the cumulative voting system was considered a failure. 207 In the most recent official public poll about cumulative voting conducted by the CMA in 2018, 51.8% of listed companies did not agree with imposing cumulative voting. This is mainly because this voting method would restrain the right of major shareholders, particularly the controlling family groups or 'semi-family companies' ,208 which found this method of voting to be an obstacle to running the company.209 The poll also noted that 51.8% of these companies believe that there are many obstacles facing the implementation of this method.210 First, the majority shareholders, known as 'the dominant groups' will refuse to use cumulative voting since it negatively affects their control in the company.211 Secondly, the lack of minority awareness of this method will lead to electing inappropriate candidates for the board.212 Thirdly, cumulative voting creates a state of heterogeneity among the board members, which affects the company's investment decisions.213 Fourth and finally, the KCL does not compel companies to adopt cumulative voting,214 and most companies find no reason to adopt this method. Accordingly, 51.8% of listed companies in the survey preferred to use the method of common voting rather than cumulative voting.215 In fact, from the perspective of some companies in Kuwait, cumulative voting is an unfair process because it deprives the shareholders of electing all board members.216 That sentiment reflects a globally held common belief of those who oppose cumulative voting, based on the fact that the board of directors should represent all shareholders in the company.217 Despite the sentiment, 64.3% of listed companies believe that cumulative voting is an effective tool for protecting minority rights.218 Still, 94.6% of listed companies believe that the minority shareholders need more awareness and education about this method.219 Hence, cumulative voting is not suitable for the context and the status of listed companies in Kuwait, due to major shareholders' concentration of ownership.

3.4.1.3
Weak Monitoring Instruments Conceptually, shareholders in Kuwait are entitled to monitor the management of the company.220 The shareholder's right to monitor includes the right to appoint the company's auditor, determine his compensation, and 209 PowerPoint_Workshop3, supra note 207 at slides 5 and 6. 210 Ibid., slides 9 and 10. ask questions about the financial report in the annual general meeting.221 A shareholder also has the right to inspect the company's books and records.222 However, there is an argument that monitoring rights are not well supported in the law and KCCG in Kuwait. As we shall see below, the weak monitoring rights of shareholders plays an important role in diminishing a shareholder's role in the company, as explained below. First, the rules concerning a shareholder's right to appoint the auditor are rather flexible. The KLC provision actually permits the shareholders to authorise the board of directors to appoint the auditor and determine his remuneration.223 There is also a longstanding practice that the general assembly will appoint the auditor based on the recommendation of the board of directors.224 These two alternative appointments raise concerns about existing nepotism between the auditor and the board of directors.225 There is a fear that, if appointed in this fashion, the auditor would be loyal to the board rather than to the company and the shareholders.226 This suspends the point of independence for an auditor, whose role is to monitor the board of directors. In solving this issue, some suggest that, to ensure auditor independence, there should be an independent committee chosen by the shareholders, that is responsible for appointing the auditor and determining his compensation.227 The committee then provides a recommendation to the general assembly who votes to appoint.228 Surprisingly, the KCCG 2015 takes a paradoxical approach that does not support the concept of an independent auditor. First, it requires the board of directors to form an Audit Committee; the board has the authority to determine the term of committee membership and define the mechanisms of its operations.229 Some of the committee's responsibilities are to 'provide the board of directors with its recommendations concerning the appointment, re-appointment, or replacement of the External Auditors, and specify their remunerations related to audit functions are provided to the company' .230 These responsibilities would seemingly permit the Audit Committee, that consists of member of the board of director, to monitor the auditor; it also negatively affects an auditor's independence as the committee specifies the auditor's compensations. Second, the rules explicitly require that the shareholders, through the general assembly, appoint the auditor based on the proposals of the board of directors.231 That process, of course, involves intervention of the board and detracts from the sacrosanct right of shareholders in appointing the auditor. The KCCG 2015 directly contradicts the KCL rules, which emphasise the important role of the independent auditor in the company,232 as well as the role of the auditor in monitoring the board of directors.233 Also, the KCCG 2015 does not account for the idea that ,under the KCL, the auditor owns duties toward the company and its shareholders, not the board of directors.234 This raises the larger concern that the code is violating a higher regulation, the KCL, which granted the CMA the authority to issue the Code.235 The rules concerning the external auditing in the KCCG are void since they contradict the KCL. This supports the finding that the inconsistency of the provisions of the KCCG with those of company law in other MENA countries leads to confusion among listed companies concerning the application of CG standards.236 The monitoring role of the shareholders in the company diminishes as the board of directors gain significant power over the auditor. Contradiction in the law and the legal frailty that accompanies it empowers major shareholders to gain dominion and control 230 Kuwait, CMA, Executive Bylaws, Module 15: Corporate Governance (2015), Article 5-7. 231 Ibid., Article 5-8. 232 According to Article 229 of the KCL, 'The auditor shall at any time have the right of access to the company's books, registers and documents and may request any details he deems necessary. He shall also have the right to verify the company's assets and liabilities. If the auditor is unable to exercise such rights, he shall report this in writing to the board of directors, which shall submit this to the ordinary general meeting and shall serve the Ministry and the Authority with a copy thereof' . Also, according to Article 230, the auditor is responsible for providing an annual financial statement. 233 According to Article 230, the auditor shall specify in the financial statement whether the data contained in the board of directors' report are consistent with the facts established in the company's books and documents in accordance with the generally accepted auditing principle. Also, the auditor must specify if there have been violations of the provisions of the law or the company contract during the financial year and whether these violations still exist, to the extent such information is made available to the auditor. over a company's decision making. Thus, shareholders in Kuwait have no genuine role in scrutinising the financial statements of the company. Not only does this impact the integrity of the financial reports, it also marginalises the role of shareholders in monitoring their companies.
Second, the KLC does not support the shareholder's right to inspect the company's books and records. Under the law, an auditor plays an important role as intermediary for shareholders in inspecting the company's books and records; they are allowed to inspect these records at any time.237 If the role of an objective auditor is inhibited, can the shareholders themselves inspect their shareholding company's books at any time? This is an important question because active shareholders have to be cognisant of the operations and activities of the company; if not, then a shareholder will not be able to recognize and take action against board misconduct.238 Here, a shareholder's right to access the data and records of the company is crucial within the context of shareholder activism.
Third, shareholders right to individually inspect the company's records is not clearly supported by the KCL. In general, shareholders in Kuwait have the right 'to access to data and information of the company activity and operational and investment strategy regularly and easily' .239 Under the Kuwaiti system, shareholders have the right to access a few company documents such as records of shareholders and bond owners, records of disclosures regarding members of a board of directors and the executive management, and records that include the directors' names or those delegated to sign on behalf of the company.240 Unlike shareholders in other forms of companies, the laws do not explicitly grant shareholders of a shareholding company the right to inspect the company's records and books.241 While the Kuwaiti law is silent about this issue, some have argued that an individual shareholder in big companies, such as closed shareholding companies and public shareholding companies, cannot have the freedom to access and inspect the records at any time because this would interrupt the company's work.242 Then, if shareholders sense that the board has conducted a breach, an individual shareholder can request the supervisory entity to conduct an inspection or appoint a new auditor.243 However, weaknesses in the law and the empowerment of major shareholders leave minority shareholders in a fragile state when it comes to their monitoring rights. Thus, shareholders could have the right to individually inspect the company's records for several reasons.
Firstly, minority shareholders lack the right to request an appointment of a new auditor to conduct an inspection, since that right is only conferred to shareholders owning at least 5% of the company's capital. 244 Secondly, even if a shareholder could request an inspection, the procedures for such a request would come at a cost. When filing the request, a shareholder must pay 200 KD-more than 600 USD-as a non-refundable fee to the Ministry; the shareholder also must agree to personally compensate the new auditor,245 a rather high cost for an individual shareholder. If the inspection does not find any irregularity, the shareholder must also pay to publish the results of the inspection in two daily newspapers and the company's website. 246 Despite the heavy onus on shareholders, there are no provisions if the inspection confirms the shareholder's claim; also, the rules do not set a time limit for the Ministry to respond to these requests. Because of the procedures' heavy financial and time constraints, shareholders will likely fail to properly monitor their companies in this way.247 Shareholders will prefer to stay passive rather than bear the costs of monitoring their companies. However, individual inspection would encourage participation since it would be less expensive and time-consuming than government procedures for auditors. Thirdly, the KCL expressly states that inspecting a company's book is beyond the scope of intervention.248 Accordingly, in other forms of companies (general partnership companies, limited partnership companies, partnerships limited by shares), the law confers the right to inspection to non-managing partners and limited partners, either by themselves or through a representative.249 If shareholders are considered as non-managing partners or limited partners of a shareholding company, they may earn the right to closely and regularly inspect the company's records. Fourth, shareholders are considered an 'interested party' and the KCCG 2015 recognises their interest in raising the value of their investments. 250 Thus, shareholders are entitled to the right to inspect the books to protect their interest in the company.

3.4.2
Cultural and Social Factors: The Culture of Apathy Although all these shortcomings provide a sufficient explanation for the passivity of shareholders in Kuwait, shareholders still have a place to amplify their voices through participation. The reluctance of shareholders to participate is captured at the annual general meeting (AGM) and filing lawsuits against the board of directors. First, shareholders have increasingly become less engaged during AGMs.251 Under the Kuwaiti legal system, shareholders have an active and participatory role in the AGM. While attending a meeting is a shareholder's inherent right, a shareholder also has the right to vote and take part in discussions during the meeting.252 Furthermore, not only do shareholders have the right to discuss matters that are included in the agenda, they can also add urgent matters that the board did not include in the agenda.253 Most importantly, the shareholders have the right to ask questions and discuss their reports, not only with the board members but also with the auditor.254 Shareholders have a high level of freedom to ask questions, including questions related to any company secrets that directors discover during the course of their directorship.255 Despite the vast rights available to them during an AGM, shareholders in Kuwait tend to remain dormant. Although the CG code compels companies to allow shareholders to effectively participate in AGMs,256 shareholders do not properly scrutinise boards of directors.257 They do not even ask about the information that the board relied on when making the company's investment decisions.258 Second, and most importantly, voluntary delisting indicates the lack of litigation culture among shareholders in Kuwait, because the voluntary withdrawal decision may constitute a ground for filing a liability lawsuit against the board. If the shareholders can show that the decision was a result of fraud or misuse of power, or of violation of the law and the Company Contract or a management error, then a minority shareholder is entitled to file a derivative suit.259 However, the CMA Report did not indicate a significant number of shareholders challenging the withdrawal decision through litigation.260 On the contrary, it suggested that shareholder apathy encouraged the majority group to make the withdrawal decision alone, without any pushback from minority shareholders.261 In Kuwait, shareholder apathy is a result of shareholders having a minor role in holding the board accountable. Private enforcement is 'virtually non-existent' in the region, including Kuwait, due to a lack in litigation culture.262 Consequently, such passivity has encouraged directors to participate in conflict of interest transactions since their actions are never questioned. 263 Thus, shareholders are reluctant to practise their role in the company and demand better governance. This subsection indicates that the culture of shareholder apathy is the product of different circumstances and cultures present in Kuwait, such as the long litigation proceedings, free-riding problem as a result of non-existent shareholder associations, shareholders' speculative approach, and social interaction of business in Kuwait, which will be discussed below.

3.4.2.1
Long Litigation Proceedings First, long litigation proceedings could discourage small shareholders from filing a lawsuit. Although the judicial system in Kuwait is known to be relatively independent, shareholders in Kuwait do not effectively bring lawsuits due to the absence of a litigation culture; not only is there no precedent to support the shareholder, but there is also a lack of shareholder associations. 264 In general, the fact that the recoveries of the derivative suit go to the company and only proportionally to the single shareholder is one of the obstacles to bringing a derivative action.265 However, the lack of shareholder litigation could be attributed to the length of litigation proceedings, as Kuwaiti regulations do not set a time limit for the court to adjudicate the cases before them, and commercial cases remain subject to long litigation.266 Such delays in proceedings led to 7000 accumulated commercial appeals before the Supreme neither the ability nor intention to monitor due to the cost of the monitoring process.276 They tend to benefit as 'free-rider' from the efforts of large shareholders in monitoring.277 Hence, they let large shareholders take the lead and exert their power over the company. 278 The cost of monitoring and the problem of free-riding discourages any small shareholder who wishes to engage in monitoring,279 which contributes to the culture of apathy in Kuwait. Since there are no shareholder associations functioning in Kuwait, or in the entire MENA region, small shareholders do not have a way to mitigate the cost of shareholder activism, thus resulting in the tendency of small shareholders to lean on larger shareholders. 280 Thus, absence of shareholder institutions is one of the obstacles to effective shareholder engagement.

3.4.2.3
Retail Investors as Speculators Third, in Kuwait, the characteristics of the retail investor281 could explain such apathy. Although the Kuwait Boursa as an emerging market has highly concentrated ownership through institutional shareholders, the government, and dominant families, minority shareholders (retail investors) also control a significant stake in the Boursa. The total concentration of retail investors in the Kuwaiti Market ranged from 54% to 57% during the period from 2017 to 2020 as shown in Table 3. A recent study estimated that the value of retail trades in the Kuwaiti Boursa was 40% in 2016.282 Therefore, retail investors are considered one of the dominant shareholders in the MENA countries, including Kuwait.283 Such retail investors have been described as 'speculative investors' .284 However, because there is a shortage of data about the behaviour of investors in the region,285 there is no clear definition of what constitutes a speculator in the Kuwaiti market. Nevertheless, we can form a general idea about what a speculative shareholder in Kuwait is by looking at the general concept of speculator, namely someone who hopes to make a short-run profit in the market.286 There are two reasons why small shareholders in Kuwait are reluctant to exercise their legal rights. First, small shareholders do not believe they have the ability to challenge major shareholders.287 Second, the majority of small shareholders are speculative investors with short-term objectives, who do not care what happens with the future of the company as long as they can make a quick profit.288 It has been argued that there are two categories of shareholders: permanent and temporary.289 The latter are speculators who aim to sell their shares once they increase in value; they are usually absent from general meetings.290 One of the reasons for their absence is their lack of financial and managerial experience.291 Such speculators generally lack the expertise to understand the financial reports issued by the company directors.292 As a result, their votes are a weak influence on the resolutions approved in the general meetings.293 Therefore, it can be argued that retail investors acting as speculators are more likely to be passive in Kuwait. The identity of the shareholders contributes to the lack of shareholder activism in Kuwait.

3.4.2.4
Kuwait is a Small Country where Everyone knows Everyone Finally, it is important to look at the social interaction in businesses as one reason behind small shareholders' apathy. Kuwait  expatriates. The latter accounts for 70% of the population.294 Since Kuwait is a small country, where close and strong relationships exist between families and people, it is difficult to achieve strong accountability.295 In fact, close relationships and nepotism have negatively affected the appointment of nonexecutive directors.296 This raises the concern that social relations impact the integrity of board of directors' meetings, making them a mere formality.297 In Kuwait, the board meeting is becoming a place for friendly chats and drinking tea and coffee, rather than a place for running company business.298 Hence, small shareholders do not vote with their feet or launch proxy fights at AGMs299 due to the powerful influence of social interactions on Kuwaiti business. Thus, social relations between shareholders are considered one of the obstacles to the effective practice of shareholder rights.

Conclusion
Despite the recent changes in the CG system, including the CMA's endeavour to face challenges by recalibrating the application of corporate governance from a hard approach to a mixed approach based on the 'comply or explain' principle. Still, there are challenges that hinder the good practice of corporate governance that need to be resolved. This article has highlighted the main limitations of corporate governance as reflected by the event of voluntary delisting of listed shareholding companies from the Boursa. It also has provided a critical discussion on the limitations of corporate governance in Kuwait by examining the results of the official CMA Report on companies voluntarily delisting from the Boursa between 2010 and 2016 and by drawing on a sample of all companies that delisted from the Boursa between 2016 and 2020. Examination of voluntary delisted companies focused on four limitations hindering the effectiveness of the CG system.
First, the increasing number of companies delisting from the Boursa, despite the adoption of the more flexible approach of the new KCCG 2015, is related to the existence of a non-compliance culture among companies in Kuwait. This research divides the non-compliance culture into two aspects: the lack 294 Estimating the population numbers in the State of Kuwait  of discipline and education, and alienation from the CG scope. Analysis of a sample of 29 companies that delisted from the Boursa between 2016 and 2020 supports the existence of non-companies in Kuwaiti shareholding companies. For the first aspect, the sample indicates that 38% of voluntarily delisted companies did not submit a CG report and were sanctioned by the CMA for not compliance with the legal requirements including the CG code. Also, 34.6% of voluntary delisted companies did not attend the Awareness Programme. Regarding the second aspect, 96% of the voluntary delisted companies were not within the CG scope, and 73% of these companies were listed on the OTC. Thus, a non-compliance culture exists among a substantial number of delisted companies.
Second, continuous voluntary delisting of companies from the Boursa, leading to a reduction in the number of companies subject to the CG code, indicates deficiencies in the legal framework of corporate governance in Kuwait. It reveals that the current approach of the KCCG 2015 does not solve the problems apparent in the former KCCG 2013. For the most part, the current approach does not differentiate between large and small companies. There is a problem of implementation because there are no criteria for providing adequate explanations for non-compliance. Finally, the Code has failed to be flexible enough to attract companies with a non-compliance culture, which prevails among listed companies in Kuwait, as illustrated by CMA Report (2010-2016) and the analysis of the sample examined. In addition, the KCL does not constitute a sufficient source of CG rules. This deficiency means that such registered companies benefit from being on the OTC because they come under the light supervision of the Ministry of Commerce and Industry in implementing the law. Also, these companies are not required to follow many CG requirements relating to the independence, qualifications, experience, and technical skills of directors, to the appointment of CMA-licensed auditors, to the formation of a risk management committee, and to the adherence of provisions concerning shareholders' rights in the Code, including the right to all data set out in the disclosure record of the members of the board and the executive management. Another shortcoming in the KCL is the fragility of provisions concerning the responsibility of the board of directors, especially those related to the duty of loyalty.
Third, concentrated ownership in the hands of a few major shareholders creates problems for listed companies and shareholders. The majority shareholders, the dominant groups, hold power to make substantial decisions in the company, including withdrawing from the market because the provisions regarding withdrawal were easy and allow them to avoid market oversight. Furthermore, the concentration of ownership in the hands of large shareholders such as the government, dominant families, and institutional investors, raises the issue of an agency problem between these groups and minority shareholders. Groups of major shareholders have different roles to play in corporate governance, most of which negatively affect the good practice of corporate governance. For example, there is a negative relationship between governmental shareholdings and a firm's performance, implying a poor performance when the government acquires shares. Also, the concentration of ownership raises the concern of the existence of owner-managed companies, which is applicable to the Kuwaiti situation, because, in practice, whoever owns the majority of shares becomes the chairman of the board of directors. Thus, the ineffective ownership structure in Kuwait raises the issue of the diminishing role of minority shareholders due to the domination of large shareholders over the company.
Fourth, the problem of passive shareholders, another challenge of corporate governance in Kuwait, occurs for different reasons, first among them being legal factors: the insufficient protection for minority shareholders in delisted companies, the unfair 'one vote per one share' voting system, weak monitoring instruments, and, finally, cultural and social factors in Kuwait. The culture of apathy among shareholder in Kuwait is manifested in two situations: the lack of a litigation culture and ineffective participation during the AGM. The latter could be attributed to the length of litigation proceedings, the absence of shareholder institutions, 'free riding' of minority shareholders, the speculative nature of retail investors and their short-term investment agenda, and, finally, the powerful influence of social interactions on Kuwaiti business. The existence of nepotism has a negative impact on the effective practice of shareholders' rights. Figure 1 presented these limitations as a cycle. First, it highlights the existence of a non-compliance culture in companies that are voluntarily delisted from the Boursa. The cycle then reflects the second limitation, namely deficiencies in the CG legal framework, which includes the failure of the Code's approach to recognise the culture of non-compliance that drives companies to list on the OTC rather than face CG obligations. Moreover, fragility of the KCL allows companies to operate on the OTC, a restriction-free area, which is attractive to companies with a non-compliance culture and where their boards are dominated by major shareholders. The cycle shows that the inadequacy of the CG legal framework leads to the third limitation, namely concentrated ownership in the hands of major shareholders. In turn, the concentration in ownership diminishes the role of shareholders in company decision-making. The cycle then shows that this concentration leads to the fourth limitation, which is the passivity of shareholders of listed companies in Kuwait. The apathy of shareholders is one of the key characteristics of countries in the MENA region, including Kuwait. The prevalent culture of shareholder apathy rounds off the cycle, demonstrating that the passivity of shareholders and their ineffective monitoring role support the existence of the non-compliance culture. Thus, these limitations reflect and interconnect with each other.
In summary, this article recommends that Kuwait should take further steps toward legal efficiency and the harmonisation of its code and regulations between MENA country members. This could be met through the following reforms.
(1) The CMA should take further steps toward its goals to raise the awareness of business parties and shareholders by increasing its communication.
(2) The CMA should make alterations to the CG code, most importantly by adopting a 'gradual regulatory tightening' , similarly to Saudi Arabia and Egypt, in order to raise awareness in companies, business parties and shareholders. The current approach of KCCG 2015 should become entirely voluntary, so that companies with a non-compliance culture become accustomed to following CG requirements. Thereafter the Code should be revised to become more mandatory over time. The CMA may want to examine and follow other countries in the MENA region that issue a separate CG Code that takes into account differences in the types and sizes of companies. (3) The Kuwaiti Parliament should amend the current rules of the Kuwait Companies Law 2016, concerning shareholders' rights in monitoring the board and management, to support the right to individually inspect a company's records and to assign a company's auditor and external auditor. The KCL should be revised to have a balanced approach regarding the allocation of power in order to mitigate the agency problem between minority and large dominant shareholders. This could be met by adopting the two-tier system in creating the supervisory board in the listed shareholding companies, consisting of representatives of shareholders and employees. (4) The CMA should play a more powerful role in supporting the economic growth by interfering in issuing appropriate economic regulations to remedy flaws in the market and activate market mechanisms to prevent the high concentration in shareholder ownership and the domination of large shareholders. (5) Current studies in this area have provided regulators with no indication of how effective the law is regarding the economic and commercial environment and the Kuwaiti market. In our context, the preference of companies to be excluded from any legal restraints should be considered when evaluating the law as part of an economic analysis of the regulations in place. Thus, it is important to consider the role of the CMA in reviewing the laws and code, such as its departments of legal studies, development and legal studies, and capital markets development. (6) The CMA should require companies within the scope of its supervision to create an online platform where shareholders can have access to all the necessary information and dates of important meetings. (7) The CMA should create in the Kuwait Boursa a Market Arbitration Panel available for shareholders in listed companies. Finally, the CMA should support shareholders in listed companies to form a shareholder institution to spread the cost of shareholder activism and encourage shareholder engagement.