OVERVIEW

Corporate governance is a set of rules and procedures that affect the way the company is being

managed by taking into considerations the relationship among many stakeholders and the goal of

the company. The principal stakeholders include the shareholders, board of directors, employees,

customers, creditors and the community at large. A broader definition would be to define

corporate governance as a set of mechanisms where there is separation of ownership and control

between shareholders and the management. Governance is vested in a board of directors who

have a fiduciary duty to serve in the interest of the company’s shareholders rather than their own

personal interest.

As per Finance Committee, Corporate Governance in Malaysia is defined as the process and

structure used to direct and manage company’s business and its affair 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 (Report On

Corporate Governance, February 1999). In Malaysia, corporate governance is responsible by

Malaysian Code of Corporate Governance (MCCG). The Code marked significant milestone in

the reform of corporate governance in Malaysia to allure goodwill and confidence from

investors. It is equipped with the principles and best practices of good governance and described

optimal corporate governance structures and internal processes.

The framework and standard of corporate governance vary among countries in the world due to

the differences in history and culture. They are then determined by the measures in which the

company improves the way they are directed and controlled depending on the legal, financial and

ethical environment in which they work. However, Claessens (2003) believes such measures to

improve their internal governance have deficiencies in its external framework especially when

there is a lack of an appropriate and enforceable legal system. As such, this provides useful

guidance to prioritize which corporate governance standards to be reformed, as it is crucial to

ensure the company’s growth potential in order to improve the country’s development

economically. This is in accordance to Dr. Mahdav Mehra (President of World Council for

Corporate Governance) who concludes that good governance is the key to economic and social

transformation and not just about corporate excellence anymore.

Finding by Choudhury and Hoque (2006) implicates that since corporate governance involves

legal and organization structures in ensuring the integrity of a corporation, the corporation is

transformed into an institution where a bundle of contracts and rules is legitimated by legal

enactment and protected by the legal tenets of the government. This implication may be limited

nationally or extended internationally upon the rules of globalization.

CORPORATE GOVERNANCE

The Malaysia Code of Corporate Governance (MCCG), first issued in March 2000, was designed

to add value and improve the operation of an organization by bringing a systematic and

disciplined approach to evaluate and improve the effectiveness of risk management, internal

control and governance process. The Code was revised in 2007 and it addressed the issue of

corporate governance in three broad approaches, namely:

• A prescriptive approach – using specific practices with a requirement to disclose

compliance

• A non-prescriptive approach – requires to disclose the company’s corporate governance

practices with emphasizing on the disclosure of actual practices. The underlying of such

approach is due to the different needs of each company.

• The hybrid approach – using flexibly applied broad principles based on different

circumstances of each company.

In addition to the three broad approaches, the Code also highlights the principles of corporate

governance with best practices towards good governance:

Responsibility of the board – the board need to have skills and understanding of the

business to be able to lead and control effectively. Size of board needs to be sufficient

and consists of a balance of executive and non-executive directors to avoid

domination and promote board independence.

Integrity and ethical behavior – organizations are to have a code of conduct for the

directors and executive to promote ethical and responsible decision making. In order

for board to be effective, information need to be supplied in a timely fashion form and

of a quality to enable them to discharge duties.

Disclosure and transparency - sound system of internal control need to be maintained

to ensure transparency and safeguard the shareholders’ interests. Formal and

transparent arrangement should be promoted when dealing with third party such as

auditors and use the AGM to communicate and have mutual understanding of

objectives among every party involved in the company.

DEVELOPMENT OF CORPORATE GOVERNANCE

Lately, corporate governance has received more attention among educators and regulators

especially in the wake of many financial scandals involving major corporations. Due to these

scandals, corporate governance plays an important role in shaping the economic development of

a company and also the country as a whole. To understand the role of corporate governance and

economic development, Claessens (2003) believes that it is best to understand it from the broader

aspect of development namely the importance of finance, the elements of financial system,

property rights and competition:

The link between finance and growth

Claessens (2003) summarizes from Levine (1997) and World Bank (2001) that the improvement

in financial system contributes to growth and poverty reduction, hence the link between finance

and growth. Regardless of how financial development is measured, there is a cross-country

association between it and the GDP per capita growth that indicates countries with larger

financial systems grow faster. The same relationship applied at the level of countries, industrial

sectors, and firms.

The link between the development of banking systems and market finance and growth

The development of both banking systems and of market finance helps economic growth.

Generally, banks and securities markets are complementary in their functions although markets

will naturally play a greater role for listed firms. Claessens (2003) found countries with more

liquid stock markets have grown faster than those with less liquid markets. However, for both

types of economies, their growth per capita will be higher if they have a more developed banking

system, hence showing both bank and securities market do complement each other due to their

different functions. In order to function well, financial institutions and financial markets require

certain foundations including good governance.

The link between legal foundations and growth

Legal foundations such as property rights should be clearly defined and enforced as it crucially

matter various reasons that lead to higher growth, including financial market development,

external financing, and the quality of investment. Past studies (La Porta et al., 1997 and La Porta

et al., 1998) emphasized the importance of law and legal enforcement on the corporate

governance, market development and economic growth. These studies pointed out that

institutional differences relates to the country’s financial market and have direct effects on

growth. Other studies such as Beck (2000) documented how the quality of a country’s legal

system influenced the development of its financial sector and economic growth.

The role of competition and of output and input markets in disciplining firms

Finally, other factor markets beside financial and capital markets need to function well in order

to avoid corporate governance problems. This is because firms that are subjected to more

discipline in the real factor markets such as labor, raw materials, intermediate products, energy

and distribution services are more likely to adjust their operations and management in order to

maximize value added.

Corporate governance problems are therefore less severe when competition is already high in

real factor markets.

(Source by Claessens, 2003)

AGENCY THEORY

Separation between ownership and control between the shareholders and management

characterizes the existence of a firm (Bonazzi and Islam, 2007). Concerns have been raised to

design mechanisms for effective corporate control to ensure the managers are acting in the best

interest of shareholders. Based on agency theory by Jensen and Meckling (1976), an agency

relationship exists whenever one or more individuals (principals) hire one or more individuals

(agents) to manage the business and subsequently, delegate the authority to make decision to the

agents. These relationship however is not necessarily harmonious due to its agency conflicts;

conflicts of interest between principals and agents. The theory suggests that there will be some

friction and mistrust between the two groups which eventually gives implication for the

corporate governance and business ethics. When the agency conflict occurs, it tends to increase

the agency cost that incurred in order to sustain an effective agency relationship such as expenses

spent to offer bonuses to encourage managers to act in the interest of the company’s

shareholders. As such, agency theory has become a widely discussed topic in business ethic texts

as well as financial economics literature.

AGENCY THEORY AND CORPORATE GOVERNANCE

Agency theory raises a fundamental problem in organizations—self-interested behavior.

Managers may have their own personal interests that compete with the goal of company’s owner

in maximizing the wealth of shareholders. A potential conflict of interest is then exists between

these two groups as managers have been authorized by the shareholders to manage the

company’s assets by taking into consideration the shareholders’ interests. The theory insinuates

that, in imperfect labor and capital markets, managers will seek to maximize their own utility at

the expense of the company’s shareholders. This is because the managers have the ability to

operate in their own personal interest and they have better knowledge about the company and its

businesses compared to the company’s owner. Some of the evidences of self-interested

managerial behavior include the consumption of some corporate resources in the form of

perquisites and the avoidance of optimal risk positions, whereby risk-averse managers bypass

profitable opportunities in which the firm's shareholders would prefer they invest. Outside

investors recognize that the firm will make decisions contrary to their best interests.

Accordingly, investors will discount the prices they are willing to pay for the firm's securities

(Encyclopedia of Business, The Second edition).

In agency theory, a well-developed market for corporate controls is assumed to be non-existent,

thus leading to market failures, non-existence of markets, moral hazards, asymmetric

information, incomplete contracts and adverse selection among others. Various governance

mechanisms have been advocated which include monitoring by financial institutions, prudent

market competition, executive compensation, debt, developing an effective board of directors,

markets for corporate control, and concentrated holdings. Developing an effective board of

directors remains an important and feasible option for an optimal corporate governance

mechanism (Livia and Sardar, 2007). There has been the focus on enhanced ‘disclosure’ and the

’transparency’ that this allows, principally of financial performance but recently also of social

and environmental performance (John, 2004).

Agency problem is one of the issue arise in corporate governance. Study done by Livia and

Sardar (2007) was to provide an improved model for corporate governance based on effective

board of directors and analyzed the results of this model for the effectiveness of boards and their

monitoring of the CEO.

In 1932, Berle and Means (quoted in John Roberts, 2004), as applied to corporate governance it

is the shareholder who is cast as the principal and the problem, following the separation of

ownership and control, is how the principal can ensure that his agents which are the company

directors, serve the shareholders interest rather than their own. The agents maybe not act

accordingly like what the shareholders hope and accruing wealth to themselves rather than

shareholders. John Roberts (2004) stated that, the remedies to this conception of the agency

problem within corporate governance involves the acceptance of certain agency costs such as

creating incentives that will align executive self interest with the interest of shareholders.

There also universal set of techniques and practices designed to control the conduct of executives

both within the corporation and externally. According to John Roberts (2004), boards have

essentially two means to exercise control over executive such as they can fire them and they can

give them incentive such as share option. Besides that, the growth number of non-executive on

board as well as the increased specification of their role and condition of independence. The

creation of audit, remuneration, nomination and risk committees all staffed by independent non-

executives, to ensure the level of transparency by the executives. Agency cost also can be

reduced through a strong internal mechanism of control, namely, an independent board of

directors composed of non-executive directors, which nominated and elected by shareholders.

(Timothy et al., 2009).

1.5 TRANSACTION COST THEORY

Institutions and market are two possible forms of organization to coordinate economic

transactions. When the external transaction costs are higher than the internal transaction costs,

the company will grow. However, for example if the external transaction costs are lower than the

internal transaction costs the company will be downsized by outsourcing. Transaction cost theory

offers us for insights about the control of firms. According to Ke Li (2007), in the Transaction

Costs Theory, the firm is conceptualized as a governance structure, which is fundamentally

different from the market and allows for a clear distinction between markets and hierarchies.

This theory also used to distinguish nature of the firm resulting in the hierarchy, which

economizes on transaction costs in comparison to market contracts.

In 1937, Ronald Coase has set out his transaction cost theory of the firm. He defined a firm in a

manner which is both realistic and compatible with the idea of substitution at the margin. He also

stated that people will start to organize their production in firms when the transaction cost of

coordinating production through the market exchange, given imperfect information, is greater

than within the firm. He also was underlying three assumptions on why firm might arise and

dismisses which are:

i. If some people prefer to work under direction and are prepared to pay for the privilege

ii. If some people prefer to direct others and are prepared to pay for this

iii. If purchasers prefer goods produced by firms

1.5.1 TRANSACTION COST THEORY AND CORPORATE GOVERNANCE

The underlying assumption of transaction theory is that firms have become so large they in effect

substitute for the market in determining the allocation of resources. In other words, the

organization and structure of a firm can determine price and production. The unit of analysis in

transaction cost theory is the transaction. Therefore, the combination of people with transaction

suggests that transaction cost theory managers are opportunists and arrange firms’ transactions to

their interests (Haslinda and Benedict, 2009).

The firm consists from people with different views and objectives. Firms are so large that they

can mitigate effects of market mechanisms like price movements inside their firms. The

organizational structure of the company determines the extent to which company has control

over price and production. Transaction costs theory is more explicit about the possibility of

inefficient economic outcomes (Jongwook and Joseph, 2005).

According to Nicolai and Peter, corporate governance issue that may arise is transaction cost

theory such as no transaction and information costs; that is, in the absence of the knowledge and

appraisement problems introduced by economic change there would be no costs of identifying

contractual partners, drafting and executing contracts, monitoring production, constructing

contractual safeguards, judging quality, and so on. In the absence of transaction costs the choice

between price-mediated market transactions and firm hierarchies is indeterminate.

1.6 STAKEHOLDER THEORY

According to Walter J. Johnson, stakeholder theory stresses the dependency of many different

groups on the firm’s management. This approach to corporate governance strongly suggests that

corporations are run by loosely defined groups of people, each seeking something different from

the organization. This theory can show who benefits from a firm, as well as who, in fact, controls

its corporate policy. Stakeholders are those who have a transaction or benefit in the firm and its

performance. These include customers, suppliers, employees, the community, the government

and its regulatory agencies (Ronald W. Clement, 2005).

The concept of a stakeholder has become widely used as a tool for strategic management: if you

want to be an effective manager then you must take stakeholders as well as stockholders into

account. Prior to the arrival of the stakeholder theory there were commonly held views on who

had stakes in or claims on the firm,eg., Banks had a claim for the repayment of loans made to the

firm (Bruce Langtry, 1994). Joseph Heath and Wayne Norman (2004) in their article stated that

because of the extraordinary status and control that shareholders are given under corporate law,

stakeholder theorists have tended to devote relatively little attention to defending shareholder

rights. The assumption has been that shareholders already have the power to ensure that their

interests are taken into account by the firm and its managers.

The primary feature of the stakeholder theory of corporate governance is that those who have a

stake in the functioning of the firm are made up of large and diverse group. Meaning that,

stakeholders are those who seek some benefit from the optimum running of the firm. The

stakeholder theory holds that these different interests do, in fact, control the firm in their own

specific ways. Two types of stakeholders are market stakeholders and non-market stakeholders.

Market shareholders are those that engage in economic transactions with the company as it

carries out its primary purpose of providing society with goods and services. Employees,

stockholders, customers, suppliers, retailers/wholesalers and creditors belong to market

stakeholders. Non-market stakeholders are people or groups are affected by or can affect a firm’s

actions. Communities, activist groups, media, business, support groups, governments and the

general public belong to non-market stakeholders (Chapter 1, Bus 201, Business and Society).

According to Walter J. Johnson, the stakeholder theory is both a descriptive and normative

theory. It is descriptive in that it functions as a way of describing how a company is constituted

and controlled. In this case, one can see how customers or investors all have their say in how the

firms market its products, for example. It is a normative theory in that it suggests how a firm will

take all stakeholder groups into account in formulating basic policies.

1.6.1 STAKEHOLDER THEORY AND CORPORATE GOVERNANCE

Empirical research on the intersection of corporate governance and stakeholder theory has

focused either on the perceptions of board members regarding their stakeholders or CSR

orientation. Other study stated that the representation of stakeholders on the board of directors.

Some studies have also examined the effects of board composition on a firm’s stakeholder

performance and corporate social performance (Silvia et al., 2007).

According to Silvia et al. (2007), although board diversity has not been connected to stakeholder

theory in the literature, they stated that, corporation have a responsibility to reflect societal

diversity in their governance boards, but at the same time this will allow them to establish

improved relationships with increasingly diverse stakeholders. Greater demographic diversity on

boards will place the firm in a better position to establish links with different stakeholders.

An active engagement with stakeholders can thus be considered both a condition for and a

consequence of the stakeholder approach to corporate governance. Stakeholder engagement

processes range from identification of key stakeholders to long term project teams and

partnership. This is not the role of board to involve with all the programs for stakeholder’s

management, but to ensure that management aware with the stakeholders need and wealth, Ricart

et al, 2005 (quoted by Silvia et al., 2007).

1.7 CORPORATE ETHICS

Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics

that examines ethical principles and moral or ethical problems that arise in a business

environment. It applies to all aspects of business conduct and is relevant to the conduct of

individuals and business organizations as a whole (Wikipedia). Ethics has three categories which

including moral awareness, moral dilemma and moral laxity. Moral awareness is derived from

behavioral models of ethical decision-making, which represent the first step in the ethical

decision-making process. The core of the moral awareness is recognizing the existence of a

moral problem in a situation. Moral dilemmas are based on the principal difficulty that it is hard

to discover what one ought to do when facing a choice between non-overriding conflicting moral

requirements or between non-overriding conflicting interests. However, many ethical problem

cases are neither a compliance problem nor a genuine moral dilemma. Moral laxity is the failure

to identify particular opportunities and take significant steps toward realizing a broad moral goal

whose worthiness is admitted (Ben Tran, 2008). Ethics is associated in two different way which

are relates to ethical values and the second ways related to the corporation are expected or

required to manage their own ethical performance.

1.8 CORPORATE GOVERNANCE AND CORPORATE RESPONSIBILITY

Under OECD Principle III found that responsibility is the corporate governance framework

should recognize the rights of stakeholders as established bylaw and encourage active co-

operation between corporations and stakeholders in creating wealth, jobs, and the sustainability

of financially sound enterprise. This Principle recognizes that corporations must abide by the

laws and regulations of the countries in which they operate, but that every country must decide

for itself the values it wishes to express in law and the corporate citizenship requirements it

wishes to impose. As with good citizenship generally, however, law and regulation impose only

minimal expectations as to conduct. Outside of the law and regulations, corporations should be

encouraged to act responsibly and ethically, with special consideration of the interests of

stakeholders and, in particular, employees.

Corporate Responsibility is the way in which are fulfill the obligations to our stakeholders

including our employees, customers, regulators, suppliers, investors and Government bodies. It

involves a more comprehensive and public reporting of our performance beyond financial

reporting, to include environmental, social, governance and ethical dimensions of our activities

and the way we manage our relationships with our stakeholders and communicate our values and

principles affects the long-term success of our business. The excellent track record in reporting

environmental and corporate responsibility performance believed that the leadership position

helps to improve overall business performance (Veolia Water, 2010).

However, corporate responsibility defined there are six responsibilities under Malaysian Code of

Corporate Governance, Revised 2007. The responsibility consists of:-

Reviewing and adopting a strategic plan for the company;

Overseeing the conduct of the company’s business to evaluate whether the business is

being properly managed;

Identifying principal risks and ensuring the implementation of appropriate systems to

manage these risks;

Succession planning, including appointing, training, fixing the compensation of and

where appropriate, replacing senior management;

Developing and implementing an investor relations programmed or shareholder

communications policy for the company; and

Reviewing the adequacy and the integrity of the company’s internal control systems and

management information systems, including systems for compliance with applicable

laws, regulations, rules, directives and guidelines.

Companies are increasingly recognising the reputational risks and opportunities associated with

corporate responsibility, and many large corporations are making significant investment in

policies, practices, management and reporting systems to ensure their corporate behaviour is

responsible in the eyes of their stakeholders (Jenny Dawkins, 2004). In addition, Jenny also

stated that to produce effective in corporate responsibility for companies, there are several points

to be follows:-

develop a clear communications strategy, taking into account which aspects of the

responsibility programmed best fit with the corporate reputation and with stakeholders’

concerns, and also the opportunity and risk to the brand inherent in the communications

activity

tailor the content, style and channel of communications to the different expectations of

the various stakeholder audiences (while, of course, maintaining the overall coherence of

the company’s message) and consult stakeholders when developing or revising

communications on corporate responsibility

Coordination is key, ensure the consistency of messages and the alignment of the

company’s communication with its behaviour. The most effective communication in

some cases may involve embedding corporate responsibility messages within mainstream

communications

do not under-estimate internal communications, employees are an under utilized and

potentially powerful channel for enhancing a company’s reputation for responsibility

among its key stakeholders.

1.9 CORPORATE GOVERNANCE AND CORPORATE TRANSPARENCY

Under OECD Principle III found that transparency is the corporate governance framework

should ensure that timely and accurate disclosure is made on all material matters regarding the

corporation, including the financial situation, performance, ownership and governance of the

corporation. This Principle recognizes that investors and shareholders need information about the

performance of the corporation (its financial and operating results), as well as information about

corporate objectives and material foreseeable risk factors to monitor their investment. Financial

information prepared in accordance with high-quality standards of accounting and auditing

should be subject to an annual audit by an independent auditor. This provides an important

check on the quality of accounting and reporting. In practice, accounting standards continue to

vary widely around the world. Internationally prescribed accounting standards that promote

uniform disclosure would enable comparability, and assist investors and analysts in comparing

corporate performance and making decisions based on the relative merits. Information about the

corporation’s governance, such as share ownership and voting rights, the identity of board

members and key executives, and executive compensation, is also important to potential

investors and shareholders and a critical component of transparency.

Many objective of the corporate governance is increased transparency. From the study of

Hermalin and Weisbach, 2007 stated that how transparency potentially affects governance. This

paper show the level of transparency can be understood as deriving from governance relation

between CEO and the Board of Director. Increasing transparency provides benefits to the firms,

however, also need a costs. Better transparency improves the board’s monitoring of the CEO by

providing it with an improved signal about his quality. But better transparency is not free: The

better able the market is to learn about the CEO’s ability, the greater the risk to which the CEO is

exposed.

In reality, disclosure and transparency are vital for a strong governance framework in any capital

market (Anwar and Tang, 2003). This study examines transparency and disclosure in Malaysia

which focus on the challenges for global capital markets and the Malaysian experience.

Achieving high levels of corporate transparency and governance is a collective effort. Also

promote education and awareness on the importance of responsibility and channels for exercising

corporate governance.

2.0 CORPORATE GOVERNANCE AND CORPORATE ACCOUNTABILITY

Under OECD Principle III found that accountability is the corporate governance framework

should ensure the strategic guidance of the corporation, the effective monitoring of management

by the board, and the board’s accountability to the corporation and the shareholder. This

Principle implies a legal duty on the part of directors to the corporation and its shareholders. As

elected representatives of the shareholders, directors are generally held to be in a fiduciary

relationship to shareholders and to the corporation, and have duties of loyalty and care that

require that they avoid self-interest in their decisions and act diligently and on a fully-informed

basis. Generally, each director is a fiduciary for the entire body of shareholders and does not

report to a particular constituency. As the board is charged with monitoring the professional

managers to whom the discretionary operational role has been delegated, it must be sufficiently

distinct from management to be capable of objectively evaluating them.

Traditionally, accounting and finance researchers have focused on a variety of corporate

governance mechanisms of accountability, where accountability has been interpreted only as

corporate accountability to shareholders (Brennan and Solomon, 2008). According to the Oxford

English Dictionary, accountability means: “the quality of being accountable; liability to give

account of, and answer for, discharge of duties or conduct”. This definition implicitly embodies

the notion of exposure to punishment in the event of unsatisfactory discharge of duties. The main

mechanisms of control and accountability are very similar, in principle, to those set out in

modern reports on corporate governance and internal control (Jones, 2008). Furthermore,

accountability is a concept in ethics and governance with several meanings. It is often used

synonymously with such concepts as responsibility, answerability, blameworthiness, liability,

and other terms associated with the expectation of account-giving. As an aspect of governance, it

has been central to discussions related to problems in the public sector, nonprofit and private

(corporate) worlds. In leadership roles, accountability is the acknowledgment and assumption of

responsibility for actions, products, decisions, and policies including the administration,

governance, and implementation within the scope of the role or employment position and

encompassing the obligation to report, explain and be answerable for resulting consequences

(Wikipedia).

However, from the 1990s, responding to the increasing severity of the impact on society of

unexpected corporate failures – and continued failures – responsible corporate governance was

added as an accountability requirement. Further, as the activities for which companies are

accountable have been extended (paralleling the growth of their “power” in society), so corporate

responsibility information has featured as an element in their accountability reports. As these

changes have occurred, the importance of the tripartite audit function in securing corporate

accountability has come to be recognised and its members – the company’s external and internal

auditors and its audit committee – have become increasingly multi-disciplinary in nature (Porter,

2009).

Based on Code of Best Practice, a set of good corporate governance practices based on the

principles of “openness, integrity and accountability” (para. 3.2). The Code included provisions

such as the following:

The Board [of directors] should meet regularly, retain full and effective control over the

company and monitor the executive management.

The Board should have a formal schedule of matters specifically reserved to it for

decision to ensure that the direction and control of the company is firmly in its hands.

It is the Board’s duty to present a balanced and understandable assessment of the

company’s position.

The board should establish an audit committee of at least three non-executive directors

with written terms of reference which deal clearly with its authority and duties.

The directors should report on the effectiveness of the company’s system of internal

control.

The directors should report that the business is a going concern, with supporting

assumptions or qualifications as necessary.

CONCLUSION

A good corporate governance conforms with corporate ethics, transparency, responsibility and

accountability and there is a positive relationship between corporate governance and these

elements. As such, it is important to instill these commonly accepted principles to ensure a good

corporate governance system with a strong emphasis on shareholders’ welfare:

Rights and equitable treatment of shareholders: organizations should respect the

rights of shareholders and help them to exercise those rights by effectively

communicating understandable and accessible information to them. Shareholders also

should be encouraged to participate in general meetings so that they can voice their

opinions and be updated on what is happening in the company

Interests of other stakeholders: Organizations should recognize that they have legal and

other obligations to all legitimate stakeholders.

Role and responsibilities of the board: the board needs to be equipped with a range of

sills to enable them dealing with various business matters and needs to be able to review

and challenge management performance. Board size needs to be sufficient and

appropriate level of commitment must be delivered, in addition to having the appropriate

number of both executive and non-executive directors

Integrity and ethical behaviour: to have code of conduct for both directors and

executives to promote ethical and responsible decision-making. In addition to that, many

organizations developed Compliance and Ethics Programs to reduce the risk of the

company steps outside of ethical and legal boundaries.

Disclosure and transparency: management and board’s roles and responsibilities need

to be made known. Company’s financial reporting needs to go through independent

verification and to have a timely and balanced information disclosure to ensure

accountability and transparency

REFERENCES

1. Ben Tran. (2008). Paradigms in corporate ethics: the legality and values of corporate

ethics, Social Responsibility Journal VOL. 4 NO. 1/2 2008, pp. 158-171

2. Benjamin E. Hermalin and Michael S. Weisbach. (2007). Transparency and corporate

governance, NBER Working Paper Series

3. Bonazzi, L. and Islam, S. M. N., (2007), “Agency theory and corporate governance: A

study of the effectiveness of board in their monitoring of the CEO”, Journal of Modeling

in Management, Vol. 2, Issue 1, pp: 7-23.

4. Brenda A. Porter. (2009). The audit trinity: the key to securing corporate accountability,

Managerial Auditing Journal Vol. 24 No. 2, 2009 pp. 156-182

5. Choudhury, M. A. and Hoque, M. Z. (2006), “Corporate governance in Islamic

perspective”, Corporate Governance, Vol. 6, No. 2, pp: 116-128.

6. Claessens, S.2003, “Corporate Governance and Development”

7. Encyclopedia of Business, The Second edition. Retrieved from

http://www.absoluteastronomy.com/topics/Corporate_governance

8. Examination Book,Bus 201, Business and Society, Chapter 1.

9. Fiammetta Borgia. (2005). Corporate governance & transparency role of disclosure: how

prevent new financial scandals and crimes?, American university transnational crime and

corruption center (traccc) school of international service pp 3 – 52

10. Haslinda Abdullah and Benedict Valentine, (2009), Fundamental and Ethics Theories of

Corporate Governance, Middle Eastern Finance and Economics, Volume 4.

11. Heiko Spitzeck. (2009). Organizational structures and processes: The development of

governance structures for corporate responsibility, VOL. 9 NO. 4 2009, pp. 495-505

12. Jenny Dawkins. (2004). Corporate responsibility: The communication challenge, Journal

of Communication Management Vol. 9, 2 108–119

13. John Roberts, (2004), Agency Theory, Ethics and Corporate Governance, Corporate

Governace and Ethics Conference, Maquarie Graduate School of Management, Sydney,

Australia, June 28-30 2004.

14. Jongwook Kim and Joseph T. Mahoney, (2005), Property Rights Theory, Transaction

Costs

15. Joseph Heath and Wayne Norman, (2004), Stakeholder Theory, Corporate Governance

and Public Management : What Can the history of state-run enterprises teach us the post

–Enron Era, Journal of Business Ethics, Volume 53, pp. 247-265.

16. Ke Li, (2007), Transaction cost, corporate governance and division of labor-A general

equilibrium analysis of professional managers and its implication to China’s practice,

Research in International Business and Finance, Volume 21, pp. 447-468.

17. Livia Bonazzi and Sardar M.N. Islam, (2007), Agency Theory and Corporate

Governance: A Study of the Effectiveness of Board in Their Monitoring of the CEO,

Journal of Modelling in Management, Volume 2, pp. 7-23.

18. MALAYSIAN CODE ON CORPORATE GOVERNANCE (Revised 2007), Securities

Commission

19. Maria Maher. (1999), “Corporate governance: effects on firm performance and economic

growth, OECD

20. Michael John Jones. (2008). Internal control, accountability and corporate governance

Medieval and modern Britain compared, Accounting, Auditing & Accountability Journal

Vol. 21 No. 7, 2008 pp. 1052-1075

21. Niamh M. Brennan and Jill Solomon. (2008). Corporate governance, accountability and

mechanisms of accountability: an overview, Accounting, Auditing & Accountability

Journal Vol. 21 No. 7, 2008 pp. 885-906

22. Nicolai J. Foss and Peter G. Klein, Austrian economics and the transaction cost approach

to the firm, Research Paper.

23. Ronald W. Clement, (2005), The Lessons from Stakeholder Theory for U.S. Business

Leaders, Business Horizons, Volume 48, pp. 255-264.

24. Silvia et al., (2007), Maximizing Stakeholders’ Interests: An Empirical Analysis of The

stakeholder Approach to Corporate Governance, Working Paper No. 670.

25. Spitzeck, A.2009, “Towards an impartial and effective corporate governance rating

system”

26. Stijn Claessens.(2003), “Corporate Governance and Development, The International

Bank for Reconstruction

27. Theory, and Agency Theory: An Organizational Economics Approach to Strategic

Management, Managerial and Decision Economics, Volume 26, pp. 223-242.

28. Timothy et al., (2009), Inside Agency: The Rise and Fall of Nortel, Journal of Business

Ethics, Volume 84, pp. 165-187.

29. Zarinah Anwar and Kar Mei Tang. (2003). Building a framework for corporate

transparency challenges for global capital markets and the Malaysian experience, Article

International Accountant