PETALING JAYA: Public-listed companies (PLCs) in Malaysia are discouraged from appointing active politicians as well as persons linked directly with the executive powers such as heads of state, heads of government and ministers as board members.
This is among the recommended best practices under the Securities Commission’s (SC) 2021 edition of the Malaysian Code on Corporate Governance (MCCG), which took effect yesterday.
The recommendation to keep PLCs’ board of directors free from political and government-related influence is to promote objective and independent judgment in line with global best practices, stated the SC.
A quick check by StarBiz showed that a number of politicians, both from the ruling coalition as well as the Opposition, are currently sitting on the boards of several Malaysian listed companies.
For example, Padang Terap MP Datuk Seri Mahdzir Khalid (pic below) and Langkawi Umno division chief Datuk Nawawi Ahmad are on the board of Tenaga Nasional Bhd, a government-linked company.
Meanwhile, on Penang state government-linked PBA Holdings Bhd, the chief minister (CM) Chow Kon Yeow as well as both deputy CMs Prof Dr P Ramasamy and Datuk Ir Ahmad Zakiyuddin Abd Rahman are among the elected representatives on the board.
In the event a company insists on appointing a politician or a person in the executive branch as its director, the MCCG does not mention any potential penalty to be taken against the PLC.
Hence, the onus is on the shareholders to ensure that PLCs embrace the recommendation by the MCCG.
Another key recommendation under the latest MCCG is that the call for 30% women directors has been extended to all listed companies, regardless of their market capitalisation.
This is to accelerate the progress of female participation on boards, considering that Malaysia had failed to achieve its 30% target by end-2020
It is noteworthy that the participation of women on boards currently stands at 25.3% for the top-100 listed companies.
Previously, the 2017 edition of the MCCG had recommended having 30% women directors on boards of large PLCs.
Large companies are those included on the FBM Top 100 Index or companies with a market capitalisation of RM2bil and above, at the start of the companies’ financial year.
The 2021 edition of the MCCG also introduced a rule that disallows an individual to sit as an independent director on the same board for more than 12 years.
Bursa Malaysia will introduce the 12-year tenure limit without further extension for independent directors in the Listing Requirements with targeted issuance in the fourth quarter of 2021.
The SC said in a statement yesterday that Bursa Malaysia will solicit feedback from listed issuers and industry before finalising the implementation timeline.
As at March 31, a total of 434 independent directors had tenures of more than 12 years, out of which 49 independent directors had served on the same board for more than 20 years.
“To encourage periodic refresh of board composition, the MCCG recommends that the two-tier voting process be implemented for the re-appointment of independent directors with tenures of more than nine years.
“The two-tier voting process, which was first introduced in 2017, acts as a speed bump for boards and shareholders to carefully evaluate the decision to retain independent directors with tenures of more than 12 years and provide minority shareholders the opportunity to vote against such retention in the second-tier voting process, ” the SC said.
Under the two-tier voting process, shareholders’ votes will be cast in two tiers – Tier 1 where only the large shareholders of the company vote and Tier 2 where only shareholders other than large shareholders vote.
The resolution to retain independent directors with tenures of more than nine years is deemed successful, only if both Tier 1 and Tier 2 votes support the resolution.
The two-tier voting process will be applicable for resolutions tabled at general meetings held on or after Jan 2,2022.
Since 2017, the SC said the adoption of the MCCG by PLCs has been encouraging, with an adoption level of over 70%.
According to SC chairman Datuk Syed Zaid Albar, (pic below) there is a strong need for good corporate governance and board leadership, especially as companies navigate the prolonged post-pandemic recovery period.
“The MCCG 2021 supports boards to build long-term resilience through the adoption and implementation of corporate governance policies and practices which will sustain listed companies in meeting challenges in a fast evolving business landscape, ” he said.
The MCCG 2021 also addresses the urgent need for companies to manage environmental, social and governance (ESG) risks and opportunities, with the introduction of new best practices that emphasise the need for collective action by boards and senior management.
The global commitment and acceleration of efforts to transition towards a net zero economy has resulted in demand for greater action on the part of corporates.
The SC’s review of sustainability statements by large listed companies found that some have begun to address climate-related risks but more can and needs to be done.