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2011/SOM1/EC/WKSP1/010 Session 4

Improving the Utility of Corporate Governance Codes

Submitted by: Bursa Malaysia

Workshop on Advancing Good Corporate Governance by Promoting Utilization of the OECD Principles of Corporate Governance

Washington, D.C., United States2 March 2011

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APEC WORKSHOP ON ADVANCING CORPORATE GOVERNANCECORPORATE GOVERNANCE

“Improving the Utility of Corporate Governance Codes”

SELVARANY RASIAHSELVARANY RASIAHChief Regulatory Officer

2 March 2011

CG CodeCG Code

Preamble

CG Code CG Code cannot operate cannot operate

in a vacuumin a vacuum

AdequateAdequate

supported by

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Adequate Adequate regulatory regulatory

framework which framework which promotes CGpromotes CG

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Regulatory Framework on Corporate Governance in Malaysia

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Regulatory Framework of CG in Malaysia

Hybrid approach The SC (SecuritiesCommission) is the ownery pp

M d t V l t

Malaysian Code on CG

Securities laws

Companies Act 1965

B S iti

of the CG Code but Bursagives teeth to it viamandatory disclosurerequirements in the LR

Mandatory VoluntaryCode on CGBursa Securities

Listing Requirements

(LR)

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adopts the “comply or explain”approach i.e. disclose -

• how the principles are applied;and

• the extent of compliance withbest practices (must identify &give reasons for areas of non-compliance)

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Securities Commission • Authority & enforcement power over all

PLCs• Administers & reviews securities laws

Key Players in CG Regulatory Framework

Key Key PlayersPlayers

Companies Commission of

Malaysia• Regulates all Malaysian

companies• Administers & reviews

companies laws includingrequirements relating to

• Custodian of the CG Code

Bursa Securities Frontline monitoring ofcompliance by public listedcompanies (“PLCs”) with theirobligations under the LR (suchas disclosure of compliance

i h CG C d )

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requirements relating toCG

with CG Code)

Institutional organisations / Investors• Malaysian Institute of Corporate Governance - to raise the

awareness and practice of good CG in Malaysia• Minority Shareholders Watchdog Group - to promote CG

through shareholder activism• Institutional investors to play greater role by stating their

CG expectations on investee companies

Overview of CG Framework In Asian Markets

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Thailand

Generally the CGCodes…adopts a hybrid

approach

Overview

Comply Comply or or

ExplainExplainSingaporeIndonesia

are modeled after theOECD Principles butdiffer in terms ofcoverage - tailored tosuit their localcircumstances eg.Indonesian Codeincluderecommendation onbusiness ethics

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Hong Kong

business ethics cover key areas: equitable treatment

of shareholders operation &

accountability of board

transparency & disclosure

Malaysian Code of Corporate Governance

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Code was issued in 2000 and revised in

Malaysian CG Code

MCCGMCCGand revised in 2007

MCCGMCCG

Principles of CG & Best Practices in CG Principles & Best Practices for

O h C P i i

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est act ces CGPrincipal responsibilities of the board, constituting an effective board, board structures & procedures, relationship

of the board to management, accountability & audit, shareholders

Other Corporate Participants shareholder voting, dialogue

between companies & investors, evaluation of governance

disclosures & external auditors

Application of the Corporate Governance Code

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Separation of roles of Chairman & CEO

Examples of Findings: Compliance beyond the Malaysian CG Code

• 82.5% of the PLCs separated the roles • 33.5% of the PLCs had independent

directors as Chairman

Independent directors

• 40.2% of the PLCs had Boards comprising half or more of independent

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comprising half or more of independent directors

These findings are useful as they provide guidance to the market &enable Bursa to assess the state of CG practices of listed companies

Challenges for CG Codes

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Challenges for CG Codes

CG Codes CG Codes usually usually

b i f & tb i f & t

Codes are not detailed. A lotis left to the board &companies to carry out.C d h ld b brief & not brief & not

detailed detailed enoughenough

CC

CG Code CG Code ChallengesChallenges

Codes should besupplemented by guidelines.

Malaysia - Some guidesissued:• CG Guide• Guidelines & Best

Practices for Internal AuditFunction

• Guidance for Directors in

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Compliance Compliance in form in form

rather than rather than substancesubstance

Companies & boards may take the approach ofcomplying in form and not substance. Thechallenge is to ensure that in implementing theCodes, companies & directors truly embrace thespirit of CG instead of merely complying forconformance sake

Preparing Statement ofInternal Control

• Sustainability Guide

Key Factors In Improving Utility of Corporate Governance Code

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Awareness throughmedia, nationwideroadshows & directorengagement

Buy in from board,government, regulators,industry organisations &

Educational initiatives

Key Factors

institutional investors

Incentivizingcompanies throughrecognition & awards.

Educational initiatives • MAP & continuous

training for directors• issuance of guides

Improving Improving Utility of CG Utility of CG

CodeCode

Expectations frominstitutional investors &shareholders

EPF issued its CorporateGovernance Principles & VotingGuidelines – make known itsexpectations to investeecompanies

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Continuous review ofCG Code to ensurecontent remainscurrent, simple & clear

Effective monitoring& enforcement byregulators of laws/rulesrelating to CG

Eg. MSWG CG IndexAward

To promote better understanding& greater compliance bycompanies

Should regulators considermandating external review ondisclosure of Codeapplication to provide qualityassurance?

??

Introduced CG-related rule changes , introduced CG Guide, Sustainability Guide, enhanced disclosure rules, contributed towards the launch of CG Rating & IndexDevelopment

Bursa’s CG Approach

Index

Positive engagements with International CG Rating Organisations, Institutional Investors, Regulatory Agencies, Auditors, Industry Organisations; Engagement on an individual basis with Boards on concerns.

Corporate Surveillance, CG Compliance Review & Substantive Review; Engagement with board on CG issues

55--pronged pronged approachapproach

p

Engagement

Monitoring & Surveillance

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Strict and timely enforcement actions on PLCs & Directors

CG Guide Seminars/Workshops, CG Week, Evening talks, Governance Programs, Roundtable discussions, Education Requirements for Errant Directors

Enforcement

Education

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Key CG Initiatives in Malaysia

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Initiative spearheaded by the SC to further enhance Malaysia’s CG standards & identity

5-year CG Blueprint (2011-2015)

Establishment of International

CG Consultative Committee

CG BLUEPRINT

To advise on –

• CG developments & trends• key focus areas & recommendations

Action plan with specific & measured deliverables

To cover strategic priorities on CG & toenhance the CG Code in the following keyareas:

• equitable treatment of shareholders &minority shareholder protection

• operation and accountability of boards andmanagement

• transparency and disclosure

Comprehensive & forward-looking document

with strategic priorities

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Announcing reasonsfor cessation of officeof directors, CEO,

Announcing changein CFO andindependent adviser(“IA”)

Upcoming CG Related Enhancements in LR

ProposedProposed CGCGEnhancementsEnhancements

, ,CFO, externalauditors & IA

Announcing –

• Details of poll results• Specific date of the ROD

( IA )Ensuring that directors,CEO or CFO has thecharacter, experience,integrity, competence &time to effectively dischargehis role

Requiring additional factorsfor consideration in

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PLCs’ Articles–• member shall be entitled to

appoint any person as proxy

• proxy has the same rights as the member to speak at the meeting

PLCs’ Articles – no limit to the number of proxies which an exempt authorized nominee member may appoint for each

omnibus account it holds.

appointment of externalauditors• accounting firm’s audit

engagements;• size & complexity of listed

issuer’s group;• number & experience of

supervisory & professionalstaff assigned to theparticular audit

Comply or Explain (CoE) Vs Apply or Explain (AoE)

CoEThe effect of CoE may result in adherence to formThe effect of CoE may result in adherence to formrather than substance. It may encourage a “box-ticking” mind-set as comply denotes a definitive yesor no answer

AoE

Moving forward

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Requires a much more considered approach. It is nota question of whether to apply or not but rather how toapply the principle. Explaining how the principles andbest practices / recommendation were applied, or ifnot applied, the reason thereof, results in compliance

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Conclusion

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CG Code alone is not enough ...CG Code alone is not enough ...

Environment that promotes CG is important – As there is no 1 size fits allapproach, codes should remain voluntary but the law/rules must providethe teeth.

OECD Principles on CG – as guidance to policy makers, regulators andmarket participants in their efforts to evaluate and improve the frameworkfor corporate governance.

CG influencers such as government, regulators & other stakeholders playvery important roles to support and commit in promoting the CGstandards – stakeholders (i.e. Investors) to play a greater role and shouldnot solely rely on regulators to effectively implement good CG.

Education – educate & create awareness among the companies & theirboards & their shareholders on the importance & benefits of good CG.

Monitoring & enforcement – all should strive for effective implementation& enforcement of CG laws & regulations. Regulators should beadequately resourced, credible & accountable, and work effectively withother domestic & external institutions.

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Thank You