Developments in Malaysian Corporate Governance

The Regulatory Perspective

Nik Ramlah Mahmood

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Agenda

Overview of Reform Agenda

The Rights and Equitable Treatment of Shareholders The Role of Stakeholders in Corporate Governance

Disclosure and Transparency

The Responsibilities of the Board

Other Initiatives

Way Forward

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Malaysia has a strong legal and Malaysia has a strong legal and institutional framework for corporate institutional framework for corporate

governancegovernance

Overview of Reform Agenda

Legal framework based on traditions of common law legal system

Comprehensive array of statutes

Supported by traditional common law remedies

Established institutions like courts and regulatory agencies

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Even prior to the crisis the basic regulatory framework was being continuously reviewed and

updated

Overview of Reform Agenda

Move to Disclosure Based Regulation (DBR)

Strengthening Accounting Standards Financial Reporting Foundation (FRF)

Malaysian Accounting Standards Board (MASB)

Review of Takeovers and Mergers Code

Strengthening insider trading laws

Requirement for independent directors & audit committee

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A three-pronged approach was adopted after the crisis

Pursuit and review

of on-going programmes

Swift implementation of measures

to address specific

weaknesses

A holistic approach to

address medium to longer term

issues

Finance Committee Report on Corporate Governance

1999

Capital Market Masterplan 2001Overview of Reform Agenda

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Rights And Equitable Treatment Of Shareholders

• Related party & substantial property transactions – enhanced disclosure & approval requirements

• Revamped Takeovers & Mergers Code

• Proposed codification of directors fiduciary duties

Shareholder Activism – formation of Minority Shareholder Watchdog Group

(MSWG)

Existing common law & statutory protection

Directors fiduciary duties

• One share one vote rule

• Shareholder rights at AGM• Related and substantial party

transactions

• Oppression remedy

• Common law Derivative Action

Common law and statutory remedies are continuously enhanced

• Proposed best practices for institutional investors

• Statutory derivative actions• Cumulative voting – being studied

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Role of stakeholders and other ‘enforcers’

Regulatory and other efforts

• Civil action - Market manipulation & Insider trading - Enhanced prospectus disclosure

obligations on directors, officers and advisers

- Right to compensation

• Enhancement of audit quality and independence

• Facilitation of efforts of MSWG

Range of laws pertaining to

various stakeholder rights &

obligations, consumer rights, labour rights and

environmental issues

Watchdogs & Gatekeepers

Regulators Professionals Investors Corporates Boards AuditorsCreditors All market participants

Stakeholders and other ‘enforcers’ must play their role…..

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Disclosure And Transparency

Substantial shareholding disclosure

MASB established –Mandatory compliance

to accounting standards- 1997

Directors and CEOs to disclose interests in PLCs - 1998

Mandatory disclosure on extent of CG Code Compliance - 2001

Transparency in share ownership –1998

Revamped Takeovers & Mergers Code – 1999

Quarterly reporting - 1999Directors certification of

accounts - 1965

Move towards DBR

Annual Report – financial statements

Directors statement on internal controls - 2001

Continuous disclosure framework – listing

requirements

Are essential pre-requisites to effective CG…..

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Responsibilities Of The Board

Best Practices –Code on Corporate Governance 2000

Enforcement – Accountability of principal officers /

controlling stakeholders

Power to Bar/suspend directors - enhanced

Directors certification of accounts - 1965

Independent directors – 1/3rd requirement 2001

Directors eligibility

Mandatory Independent directors – 1987

Directors Fiduciary duties – common law and

statutory obligations

Audit committees mandatory – 1994

Power to Bar/suspend directors

Best Practices –Guidelines on Internal Audit Function

2002

Directors statement on internal controls 2001

Audit Committee – composition & function 2001

Are also continuously enhanced…..

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Responsibilities Of The Board

Training and Awareness Component

Mandatory Accreditation Programme (MAP) for directors of PLCs Continuing Accreditation Programme (CEP) for directors of PLCs Securities Industry Development Centre Malaysian Institute of Corporate Governance Industry Corporate Awards

Ongoing changes to the law

• Codification of directors duties

• Business judgment defence

• Enhancement and rationalisation of related part and substantial property transaction provisions in Companies Act 1965

Training and awareness programmes are vigorously pursued….

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Regulatory Reform Efforts Are Supported By Other Initiatives

Acceleration of corporate restructuring

Appointment of

professional managers

Ongoing education and

awareness programmes

Engagement with

constituents

Stepping Up on Enforcement

Compounding powers enhanced

Powers to impose civil penalties

SC’s supervisory and enforcement capabilities

civil enforcement powers in relation to insider trading

provisions

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Corporate Governance Initiatives in Malaysia – a snapshot

True and fair certification by Directors on financial statementsAudit Committee RequirementIndependent Accounting Standard Setting BoardDirectors and CEOs to disclose interests in PLCQuarterly Reporting Revamped Takeovers & Mergers Code Code on Corporate Governance Mandatory disclosure on CG Code compliance Establishment of MSWG Mandatory Accreditation Programme for Directors Internal Audit guidelines for PLCs

19651994199719981999199920002001200120012002

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Way Forward - Ongoing commitment

To continue to facilitate the hybrid vigour of a multi pronged approach in efforts to enhance CG

To further build on the recommendations of Report on Corporate Governance (1999) and the Capital Market Masterplan(2001) within a holistic framework for longer-term market development

To continue to facilitate the hybrid vigour of a multi pronged approach in efforts to enhance CG

To further build on the recommendations of Report on Corporate Governance (1999) and the Capital Market Masterplan(2001) within a holistic framework for longer-term market development

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Thank youThank you