Proposed amendments to listing requirements

  • Business
  • Wednesday, 21 Jul 2010

PETALING JAYA: There is huge disparity between the annual reports of some of our blue chip companies and those of the nondescript listed companies that have barely made the transition from SME (small and medium enterprise) status.

It is like comparing Tolstoy’s War and Peace with a 3,000-word short story. Other than the financial statements, the information in the latter category of annual reports is scant, perfunctory and seldom useful.

While it is true that the larger companies have more resources to produce comprehensive annual reports, it is clear as well that many of the other companies show little interest in volunteering additional details in their annual reports.

How many times have there been announcements by listed companies that state the obvious or offer only the minimum bare facts, but little else that might have influenced our investment decisions?

For example, we are routinely informed about the appointment or resignation of directors, key executives and external auditors, but not the reasons for these changes.

Heart of the matter

Such issues are at the heart of Bursa Malaysia’s latest round of proposed amendments to its listing requirements.

Last Thursday, the stock exchange issued a consultation paper that sets out a number of enhanced or new rules, with most of these aimed at compelling the listed companies to give more information to the public than what they are providing now.

At the same time, Bursa came out with another consultation paper that asks for feedback on the draft Corporate Disclosure Guide (CD Guide), which is meant to help the listed companies better understand the disclosure obligations under the listing requirements. The consultation period ends on Aug 19.

“We expect diverse views on the consultation papers,” Bursa chief regulatory officer Selvarany Rasiah told StarBiz. “We keep a very open mind. We want all the constructive feedback we can get. There may be some issues that we have not considered and we are prepared to take on board the relevant comments.”

The last time the exchange tweaked its disclosure rules was in August last year. This was part of a revamp of the regulatory framework that saw the unification of the main and second boards to form the Main Market and the repositioning of the Mesdaq Market to become the sponsor-driven ACE Market. The changes then mainly centred on enhancing disclosure relating to transactions.

This time around, the proposed disclosure enhancements cover aspects such as changes of directors, chief executive officers (CEOs), chief financial officers (CFOs), external auditors and independent advisers.

Also included are disclosure rules for quarterly and annual reports, pledging of shares by controlling shareholders, termination of corporate proposals and voting results of shareholder meetings.

A significant change is that the listed companies will be required to announce the grounds for the appointment of a director.

In the case of independent directors, the companies must explain why these appointees are considered independent. Similarly, announcements of resignation of directors must come with reasons.

In addition, CFOs will come under similar scrutiny as the directors and CEOs. The appointment of a CFO has to be announced and his resignation has to be explained.

Other proposals

Other major proposals are for quarterly reports to have detailed analysis of performance instead of a simple review, and to have prescribed minimum content for the income and cash flow statements.

Bursa also plans to make it mandatory for the annual reports to contain five-year financial highlights and indicators to enable simplified trend analysis.

The timing of these moves appears opportune, considering recent high-profile cases of weak corporate governance and the lack of transparency. However, Selvarany said the proposed amendments were not prompted by any specific transgressions.

“There’s no particular trigger. It’s part of our continuous effort to enhance market quality,” she said.

She pointed out that because the bourse operated in a disclosure-based regime, information is integral in maintaining market integrity and investor confidence.

“People require information in deciding whether to invest in our market, and having invested, whether to hold, buy or sell. Information is like the lifeblood of the market. If people cannot rely on information or if they don’t have access to timely information, the risk premium for such a market goes up significantly and that affects the attractiveness of the market,” she said.

She said it was important for the directors and management of companies to understand that the more they disclosed, the better it was for the companies.

“Often, when there isn’t enough information on a company, investors shy away because they don’t know the sort of risk they are taking,” she said. A big part of the exchange’s effort to improve disclosure practices is to impress upon the directors and top executives of the listed companies that it is not enough to merely furnish financial numbers and to assure shareholders that the company is in capable hands.

Said Selvarany: “Investors want to know more than that. They need to understand your operations, your business and your risks, and if you’re undertaking a transaction, to understand exactly how this will impact the company. It’s about appreciating the investors’ need for information.”

On the CD Guide, she said it was aimed at assisting listed companies and their boards and senior management to better understand the listing requirements on corporate disclosure and to apply those requirements not just in form but also in substance.

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