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Saturday March 31, 2012
OPTIMISTICALLY CAUTIOUS By ERROL OH
The new Malaysian Code on Corporate Governance is a simpler guide to best practices
ON Thursday, just two days before Tan Sri Zarinah Anwar ends her term as Securities Commission (SC) chairman, the regulator released the Malaysian Code on Corporate Governance 2012 (MCCG 2012).
This may well be the last major move by the commission while she is at the helm. It's fitting considering that improving governance has always been among her priorities.
Although the Code had first come out in 2000 and was revised seven years later, the MCCG 2012 is not merely an update.
To start with, its format is a complete departure from that of the 2007 document. Whereas the latter reads more like a long list of prescriptions and is not easy to navigate, the MCCG 2012 is more palatable because it has a simpler structure.
The MCCG 2012 is broken up into eight principles that sound like slogans establish clear roles and responsibilities; strengthen composition; reinforce independence; foster commitment; uphold integrity in financial reporting; recognise and manage risks; ensure timely and high quality disclosure; and strengthen relationship between company and shareholders.
Every principle features several brief recommendations, each followed by a commentary that elaborates on the recommendation. In total, there are 26 recommendations.
The operative term here is “recommendations”; observance of the code, which will be effective on December 31, is voluntary. However, the listed companies are required to report on their compliance with the MCCG 2012 in their annual reports. That means the corporate governance statements in the annual reports published next year will reflect the MCCG 2012's recommendations.
Here's a look at a few of the more interesting recommendations:
l “The board should establish clear roles and responsibilities in discharging its fiduciary and leadership functions.”
This recommendation has the longest commentary because it provides six examples of responsibilities that the board of directors of a listed company should assume. These were also in the 2007 version of the Code, but the MCCG 2012 fleshes out the subject.
l “The board should ensure that the company's strategies promote sustainability.”
The thinking today is that a company can't go on forever if it ignores environmental, social and governance aspects of its business. The MCCG 2012 also suggests that the board ensures that the company discloses its policies on sustainability and their implementation in its annual reports and website.
l “The board should formalise, periodically review and make public its board charter.”
With this recommendation, listed companies are expected to have board charters. According to the MCCG 2012, a board charter sets out the board's strategic intent and outlines the board's roles and responsibilities.
It adds: “The board charter is a source reference and primary induction literature, providing insights to prospective board members and senior management. It will also assist the board in the assessment of its own performance and that of its individual directors.
“In establishing a board charter, it is important for the board to set out the key values, principles and ethos of the company, as policies and strategy development are based on these considerations.”
Comparing the boards charters in the annual reports next year will be a fascinating exercise, and observing if the directors live up to what's in the charters will be fun.
l “The tenure of an independent director should not exceed a cumulative term of nine years. Upon completion of the nine years, an independent director may continue to serve on the board subject to the director's re-designation as a non-independent director.”
“The board must justify and seek shareholders' approval in the event it retains as an independent director, a person who has served in that capacity for more than nine years.
Taken together, the message of these two recommendations is clear: Companies are not encouraged to retain an independent director for more than nine years.
l “The board must comprise a majority of independent directors where the chairman of the board is not an independent director.”
In November last year, the SC published a consultation paper seeking public feedback on whether or not the chairman of a listed company should be an independent director. The consultation period ended on Dec 15. Does this recommendation mean there will be no mandate that the chairman be independent? The MCCG 2012 also recommends that the chairman and CEO roles be separated and that the chairman be a non-executive director. According to Corporate Governance Blueprint issued last year, this is supposed to be effected by changing Bursa Malaysia's listing requirements. Will this happen anytime soon?
“The board should encourage poll voting.”
The SC's consultation paper last November also asked the public for views on whether poll voting should be mandated for all resolutions requiring shareholders' approval. Again, does this recommendation in the MCCG 2012 mean poll voting will not be made compulsory?
n Executive editor Errol Oh lives by a code that requires him to snort in derision whenever he reads the corporate governance statement in an annual report.
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