5% speak up

  • Business
  • Saturday, 25 Dec 2010

IT is that time of the year when various countries, Malaysia included, review how they have improved their corporate governance practices.

In this, Thailand has sprung a surprise to the region by improving its corporate governance significantly despite being embroiled in political strife in recent years. The Land of Smiles is, in fact, one of the most transparent markets in Asean today, to the dismay of its neighbours, as they all compete for investment inflows from foreign fund managers.

We can detect envy and frustration among the Asean rivals; after all, how can a country that has been locked down by political chaos possibly have corporate best practices, such that it is now recognised as having the most improved corporate governance record in Asean?

Thailand Inc has led on three new refreshing developments.

First, on the promotion of minority shareholders' rights. We have received notices from the Thai companies that we invest in, three months ahead of their upcoming annual general meetings (AGMs) in 2011. In these notices, the companies are requesting us to propose items for the agenda of their AGMs, as well as propose candidates for independent board members in advance. Can we believe our eyes? Are the Thai companies actually giving their smaller shareholders more say in decision making on their directions and in the composition of their boards?

The notices we have received state clearly that these companies have implemented policies and procedures that allow such shareholders to add items to the AGMs' agenda, as well as name board candidates. This is a significant move in an area where most companies still prefer to be opaque and vague.

The notices point out that shareholders who have the right to vote in an aggregate amount of not less than 5% of total company shares may submit a written request to the board of directors to include subjects they want to discuss as part of the agenda at the AGMs.

Can you, as an investor, imagine having your difficult questions put down as one of the items on the agenda for an upcoming AGM? I think that many board members here would flinch at the very thought of this happening.

It is also a huge boost for the minority shareholders that at least 5% of such shareholders in aggregate may now also nominate those whom they think are most capable of being independent directors.

This is particularly important as one of the main areas crying for attention in the world of improving corporate governance is the nomination process for such directors, which is often labelled as biased and opaque.

The current practice in Malaysia is that only a major shareholder can nominate an independent director. We can only wonder how independent these directors really are. This nomination process unfortunately leads to a dysfunctional board appointing new dysfunctional board members.

So isn't it high time that all Malaysian companies embrace a more accountable and transparent process of nominating directors to the board? They can take a leaf from Thailand where there is nothing too difficult or onerous about the requirements. In fact, they are very clear and accommodating.

The third development in Thailand Inc that caught our eye was voting by poll as opposed to a show of hands. Although such voting is, strictly speaking, not mandatory, virtually every Thai-listed company does so at AGMs. This is a huge step ahead of the other Asean nations. All votes - for or against, or abstentions - are counted and then often announced right after the AGMs. Full poll results are published the next business day on the country's stock exchange website, and such requirement for publication is monitored closely by Thailand's Securities and Exchange Commission.

This is a remarkable achievement especially since voting by poll moves at a snail-like pace in most other Asean markets.

Also, Thailand did not look in good enough political shape to be able to take the lead on this score. Its success stems from a laudable collaboration between regulators and various investor groups.

Thailand has decisively debunked the prevalent myth that voting by poll is somehow too difficult or expensive to implement as claimed by other Asean stock markets.

Thailand's corporate governance initiatives are a world away from some of the AGMs in Malaysia in which companies' chairmen literally orders shareholders to sit down and not ask too many questions.

Occasionally, such chairmen have even suggested that a disgruntled shareholder sell his shares if he does not like the way the company is being run. When we ask company chairmen if a poll voting has been called, they often say that such voting is expensive and the result of how each item on the agenda is voted is not necessary. We completely disagree; it is necessary for all shareholders to know the details of a vote.

What a company has to understand is that, by listing, it has raised money from the public and capital markets. It cannot then expect its shareholders not to ask questions at AGMs, or not to want clear results on all vote counts or not to want a transparent nomination process of independent directors.

It is perhaps time for Bursa in 2011 to focus on improving the current nomination process, allow minority shareholders to put items on the agenda of AGMs, and implement poll voting. As by doing so, Malaysia Inc will climb up the desired governance ladder.

Shireen Muhiudeen is managing director of Corston-Smith Asset Management in Malaysia, a fund management company that makes investment decisions based on corporate governance.

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