KUALA LUMPUR: The Securities Commission (SC) will be looking at strengthening governance issues and investor protection in 2010, especially when it comes to the composition of board members and in ensuring takeovers are regulated in a consistent manner.
Emphasis on governance would see the SC ensure that sales practices of financial products are tightened and investors are suitable to purchase sophisticated products.
“Poor governance has played a significant role in most financial crises. Steps to reduce systemic risk, protect investors and uphold fairness and efficiency in the capital market will come to naught if they are not coupled with the practice of strong governance,” said SC chairman Tan Sri Zarinah Anwar in her speech at the release of the SC Annual Report 2009.
“Therefore, the SC’s agenda for 2010 is premised on the belief that the quality and future success of our capital market rests greatly on how well its stakeholders govern themselves.’’
High on the SC’s to-do list for this year is to get directors of listed companies to comply with the substance rather than just the form of the Malaysian Code of Corporate Governance.
“One of our priorities in 2010 is therefore to focus on improving the quality of boards as a means of strengthening the practice of corporate governance,’’ Zarinah said.
“The SC will undertake focused engagements with boards of selected public listed companies to discuss our corporate governance concerns.’’
Such concerns stem from a study conducted by the SC where it found that a significant number of listed companies had independent directors who were related with each other. Doubt over the true independence was also raised as the review found that half of the independent directors had sat on boards for more than nine years.
Some 20 companies had independent directors who had tenures exceeding 30 years. Other issues include the relationship between the chairman and CEO and also the sizeable number of executive directors found in some boards.
Zarinah said the current composition of public listed company boards naturally gave rise to situations where boards were generally passive and unquestioning and that opened the opportunity for domination by owners and top management without adequate checks and balances.
She said there were instances when independent directors had not acted as stewards of the interests of the ordinary shareholder as they should have.
“Our vision for corporate governance is to have public listed companies boards move beyond meeting compliance requirements towards enlarging their role where boards can wisely guide the growth and value of their businesses,’’ she said.
Apart from dealing with the boards of companies, the SC is also reviewing the process of takeovers to ensure a level playing field.
“It is important to ensure that takeover transactions and other transactions, which in substance result in the same effect as takeovers, are regulated in the same manner and that investors are afforded the same level of protection,’’ Zarinah said. (See cover story)
To ensure that minority investors have adequate and useful advice, the SC is proposing to improve the quality of independent advice in takeover situations.
The SC has also released a consultation paper to get feedback on proposals to review sales practices of financial products and the definition of sophisticated investors.
That was done to prevent a repeat of cases in Singapore and Hong Kong where investors bought derivative products such as Lehman minibonds without understanding the risks or properties of such products.
Zarinah also said the Audit Oversight Board would start operations from April 1 and the SC was working on establishing an Alternative Dispute Resolution body, which would mediate on small monetary claims by individual investors for dealings in securities and capital market products, by July.