Corporate Governance in Malaysia

Topics: Board of directors, Corporate governance, Non-executive director Pages: 7 (2443 words) Published: March 30, 2013
Corporate Governance is a concept in which it has been existence for decades; although not in the exact form that it has come to be understood today (Anandarajah, 2001). The term corporate governance was introduced in Malaysia in 1997 during the Asian Financial Crisis. It also drew the public’s attention on the weaknesses of the Malaysian corporate governance practice (Nor Azizah Zainal Abidin, 2007). Besides that, the downfall of Sime Bank, the Bumiputera Malaysian Finance (BMF) scandal, the irregularities in Renong Berhad, the Perwaja fiasco and the internal management problem faced by Malaysian Airline System (MAS) forced government to enhance corporate governance regulations (Norwani, Mohamad, & Chek, 2011). The High Level Finance Committee Report 1999 on Corporate Governance in Malaysia defined corporate governance as the “process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking into account the interest of other stakeholders.” (Malaysian Code on Corporate Governance, 2012). The code that governs the corporate governance in Malaysia is called the Malaysia Code of Corporate Governance (MCCG). This code was recently revised in March 2012 and it is known as the MCCG2012. Besides providing relevant information to investors, this code also aims to encourage transparency management of companies, to enable investors to guide the direction of the company (Nor Azizah Zainal Abidin, 2007). The MCCG 2007 was revised with the aim to enhance the directors’ duty to the companies. With the revised MCCG 2012, there are still many issues arising from corporate governance. However, to some extent there are improvements in some area of the corporate governance. The revised MCCG 2012 contained a few improvements in the recommendation. This Code now establishes clear roles and responsibilities where ethical standard should be formalized through the code of conduct by the board to ensure its compliance. Through the company’s code of conduct, it mandates the board to formulate system of compliance and ethical standards. Besides, it also includes ensuring that the company’s strategies promote sustainability. There are many improvements made under reinforcement of independence. 3.1 mandate boards to undertake an annual independent director assessment. For an individual to serve as an independent director, 3.2 mandate a cumulative term to nine years. Under 3.3, justification and shareholder’s approval is needed if the board retains as an independent director. And lastly MCCG 2012 recommends that a majority of independent directors must be in the board and the board chairman is not an independent director. These were not in the MCCG 2007. The most important improvement under the MCCG 2012 is to ensure timely and high quality disclosure. Under this the board should make certain the appropriate disclosure procedure and policies of the company. Also, for effective dissemination of information, board should encourage the company to leverage on information technology. This is to promote better use of technology. Furthermore, with the existing recommendation, MCCG 2012 also state that the board should also encourage pool voting in order for strengthening the relationship f the company and shareholder. This imposes duty to inform the shareholders of their right to demand a poll vote by the general meeting chairman. The concern here is whether the revised MCCG have enhanced the corporate governance of the companies in Malaysia. This code calls for voluntary compliance, coupled with the requirement in the listing rules of KLSE which make mandates disclosure of the extent of compliance with the best practice sets out in the Code, while allowing for some flexibility in its implementation by companies. The aim here is to provide necessary information and encourage...
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