MSWG hopes new index will raise directors’ awareness

  • Business
  • Saturday, 21 Nov 2009

KUALA LUMPUR: The Minority Shareholder Watchdog Group (MSWG) hopes the Malaysian Corporate Governance (MCG) Index 2009 will raise the level of awareness among directors of public-listed companies (PLCs) on their roles and responsibilities in the best interests of the companies.

MSWG, which launched the annual MCG Index in June, is at the tail-end of ranking the top 100 companies based on the Malaysian Code of Corporate Governance, listing rules of Bursa Malaysia and selected international practices to be announced and awarded on Dec 10.

MSWG chief executive officer Rita Benoy Bushon said a survey found corporate directors still had a low level of awareness of their roles.

“CG is a form of self-governing by a company to provide transparent, correct and clear information especially to minority shareholders that are not represented in the board.

“For example, the law does not require disclosing the level of acceptance in the case of taking a PLC private to be disclosed, but a company with a good CG practice should do so.

“If not, the market, such as retail and institutional investors via MSWG or the media, will do it if needed.

“The MCG Index will also gauge the level of CG practices in Malaysia not only for investors but also the regulators. But, in general, Malaysia’s level of CG is at par with the other regional countries,” she told StarBizWeek.

She added that good CG practices would benefit not only minority shareholders but all shareholders at the end of the day.

On the relation between the MCG Index and investment prospects, Bushon said good CG practices often came together with profitability of a company.

Although she admitted there were companies with good profitability that did not practice good CG, the sustainability of the profit was at stake such as what had happened to Enron and Lehman Brothers.

“The downfall of Lehman Brothers was triggered by its large investment in derivatives which could be avoided if the board had knowledge of the investment risk,” she said.

On the methodology of the index, Bushon said the base methodology used 115 key parameters that would filter PLCs for conformance with Malaysian Code on Corporate Governance, listing rules of Bursa Malaysia and selected international best practices.

“This first stage score makes up 45% of the total score and was done by Nottingham University Business School, and the Governance & Transparency Index by the Corporate Governance & Financial Reporting Centre of the National University of Singapore is used simultaneously as a benchmark.

“More than 300 companies from over 900 PLCs have succeeded in getting into the next level that is the bonus and penalty stage which will measure the diversity of board members in terms of gender and skills, and whistle-blowing policy amongst others,” she said.

She said the next stage would look into the financial performance of the company, specifically return on equity (ROE) on a five-year basis.

“Companies with less than 4% in ROE will be taken out,” she said, adding that there were other stages of measuring PLCs’ CG level.

But most importantly, it was hoped the index and the top scorers would motivate other companies to emulate their practices, Bushon said.

“We will not make public the PLCs with lower scores this year but we expect to do that next year. This is to give them time to improve their practices,” she said.

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