MSWG supports ‘comply or explain’ principle


Minority Shareholder Watchdog Group (MSWG) CEO Abdul Wahab Jaafar Sidek on the amendments to improve governance. 

StarBiz: How will the amendment of the Malaysian Code of Corporate Governance affect local companies?  

Abdul Wahab Jaafar Sidek: The code has somewhat become an exercise in mere compliance by the increasing number of companies which only adhere to its principles. Too often, the “comply or explain” principle in relation to the code is being interpreted as “comply” to mean good and “explain” to mean bad.  

MSWG strongly supports the “comply or explain” principle as opposed to a more rigid regulatory approach. We believe the revision aims to encourage companies to apply the code sensibly and exercise judgment on whether certain provisions are appropriate for their individual company.  

Abdul Wahab Jaafar Sidek

Moreover, some public listed companies (PLCs) might argue that compliance with the code could inadvertently go against their interests.  

 

How will it make audit committees and the auditing function more effective? How will this affect the independence of the audit committee? 

It is hoped that the revision would make audit committees run in a professional manner, members of audit committees become role models, the chairman of the audit committee set the “emotional tone” for the committee, and the chairman be totally responsible for preventing collusion by ensuring that members ask the hard questions and know how to connect things and issues.  

MSWG has also earlier called for the audit committee to comprise of all independent, non-executive directors in the wake of the financial fiascos affecting our capital market recently.  

 

Who should the Public Companies Accounting Oversight Board (PCAOB) comprise and what should its duties be? 

Members of the board must be senior individuals of impeccable integrity and high reputation with an interest in, and sound knowledge of, the capital market and international issues relevant to the auditing and assurance function and the role of such functions in the global capital markets.  

There must be a mix of individuals from different industrial and commercial backgrounds. 

The PCAOB may issue guidelines to PLCs on how to establish an audit committee and how to derive maximum benefits from it. The overall effect is to get directors to be more accountable and responsible for the appointment of auditors as well as to be aware of influences and trends of board responsibilities. 

There are often differences of view and emphasis as to the likelihood of the establishment of audit committees on a uniformed pattern. The development of an audit committee composed of all independent, non-executive directors should be part of a more wide-ranging revamp of corporate regulation on corporate governance.  

 

What else can the Government do to strengthen corporate governance among companies and why does it need to do it? 

The Government has to strictly enforce law designed to prevent dishonest or incompetent directors from inflicting further misery on shareholders and stakeholders.  

Now there is a general feeling that not only heavy fines and penalties should be imposed but also more stringent punitive measures of imprisonment, if necessary. Many investors and stakeholders want to see disreputable directors punished.  

MSWG is of the view that the Government’s aim is a precaution to stop the “serial failures” of the corporate world at an earlier stage.  

Many investors feel that if a director who has been implicated twice in events where shareholders or creditors have lost money, he should not be allowed to become a director again without a thorough, exhaustive investigation.

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