Shareholders are the effective enforcers in corporate governance

  • Business
  • Wednesday, 10 Jun 2009

KUALA LUMPUR: Active shareholders are more effective than stock market regulators in turning up the heat on public-listed companies (PLCs) over corporate governance issues, say experts.

And the biggest group of investors, the local institutions and pension funds, should be in the frontline in ensuring companies act responsibly in running their business.

Shireen Muhiudeen, managing director at Coston-Smith Asset Management, said most local pension fund groups in the region were still not convinced about allocating resources to focus on corporate governance issues.

This, she said, was despite the fact that the current financial crisis had traced its roots to, among others, boardroom oversights.

“Aren’t pension funds long-term investors and is it not in their best interest to enhance long-term shareholder value?’’ she asked during her presentation at a session on the role of market players in influencing good corporate governance among PLCs, which was held in conjunction with the inaugural Corporate Governance Week 2009.

It had been established that well-managed companies would be able to command a premium against their rivals.

Axiata Group Bhd executive director Datuk Yusof Annuar Yaacob compared his firm with Singapore Telecommunications Ltd (SingTel). He said both companies were almost equal in business, but shares in SingTel traded at a higher valuation than Axiata’s.

“Over time we hope to close the gap,’’ Yusof said.

Axiata, he said, was starting from a clean slate as a company following the split from parent company Telekom Malaysia Bhd. The group’s current board of directors consists of experts in various fields with international business experience.

But, getting a good set of independent directors was even more crucial for small and medium enterprises (SMEs), said Professor Mak Yuen Teen, the co-director at Corporate Governance Financial Reporting Centre (CGFC) of the National University of Singapore.

He said while bigger companies could easily hire the best managers, many SMEs faced difficulties in attracting experienced professional help due to their limited resources.

Mak also brought up the issue of directors’ and CEOs’ remuneration packages.

“There is a lack of transparency on this issue, especially in Asia, and shareholders should ask for a say on pay,’’ he said.

Earlier during the day, Mak represented the CGFC in signing a memorandum of understanding (MoU) with the Minority Shareholder Watchdog Group (MSWG) to develop the Malaysian Corporate Governance (MCG) Index 2009.

The watchdog group also signed an MoU with long-time partner Nottingham University Business School (NUBS) for the index project. The Star is the project media partner.

The MCG Index 2009 is an extension of the current MSWG-NUBS annual survey.

“The index will be published in early December and culminate with the award ceremony for the best companies,’’ chief executive officer Rita Benoy Bushon told a press conference after the MoU signings.

Under the project, MSWG together with its partners will screen all listed companies on Bursa Malaysia based on compliance to key parameters, such as the revised Malaysia Code on Corporate Governance, the exchange’s Listing Rules and selected international best practice standards.

The index is industry driven led by MSWG and involves various players such as Malaysian Institute of Accountants, Malaysian Institute of Corporate Governance, Malaysian Institute of Chartered Secretaries and Administrators, Malaysian Association of Asset Managers, Associations of Stockbroking Companies Malaysia, Institute of Internal Auditors Malaysia, Rating Agency Malaysia and Institute of Corporate Responsibility Malaysia.

The top 200 companies will be filtered through based on a methodology developed by CGFC, Singapore Business Times and CPA Australia.

These companies will also be ranked on their financial performance.

A shortlisted 100 PLCs will then be interviewed by MSWG, and “a bonus and penalty” system introduced.

“It is hoped that PLCs wishing to attract long-term investors would pay more attention to good corporate governance,’’ Bushon said.

A panelist during the afternoon session, Roots Consulting Sdn Bhd managing director Margaret Chin remarked in her presentation that good corporate governance was about common sense, fair play and value.

The top-rated companies in terms of good corporate governance will probably be the ones that are already well managed and have consistent returns. For latest Bursa Malaysia indices, charts and other information click here

For latest Bursa Malaysia indices, charts and other information click here

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