Time to improve selection of directors

“The review offers valuable insights and a clear call to action that companies need to rethink their current approaches to their board selection and evaluation practices and ongoing development to remain competitive and sustainable, ” added Bursa Malaysia CEO Datuk Muhamad Umar Swift.(pic)

KUALA LUMPUR: Only 8% of listed companies use an independent, third-party search institutions, which is the best practice recommended in the Malaysian Code of Corporate Governance (MCCG).

A review conducted by Institute of Corporate Directors Malaysia (ICDM) found that personal network referrals (74%) remain the most common director sourcing method, followed by nominations by major shareholders or parent companies (14%).

Only 25% of companies had independent external board evaluations in the last 10 years, according to the review.

As for developmental programmes and training, the majority of programmes undertaken (91%) were based on individual director requests.

The Malaysian Board Practices Review pointed out that there was a lack of adequate structure, planning or pathway to ensure holistic, consistent and long-term development of directors. The review was launched by ICDM, in collaboration with Russell Reynolds Associates (RRA) and Bursa Malaysia.

“The review highlighted an important observation: companies are generally compliant with the MCCG and listing requirements for board composition.

“However, it also highlighted that 19% of independent directors have been on their respective boards for over nine years.

“This brings to question the independence of the board – a significant factor in allowing for more considered decision-making and protection of shareholders’ interest.

“It is also vital for companies to conduct periodic board evaluations by professional, experienced and independent parties, where the objective insights gained will facilitate better board-management relationships, director nomination and appointment, as well as assist in determining board remuneration, ” said RRA managing director Stephen Langton.

“The review offers valuable insights and a clear call to action that companies need to rethink their current approaches to their board selection and evaluation practices and ongoing development to remain competitive and sustainable, ” added Bursa Malaysia CEO Datuk Muhamad Umar Swift.

ICDM said that in selecting board members, companies need to consider first-time directors and look beyond the established selection of non-executive talent.

“Companies need to adapt the current culture and approach to their board composition, first by expanding their director sourcing methods, next through vigorous internal and external evaluations of the existing board, and thirdly, by driving the ongoing development and competency levels.

Balancing technical-based with performance- and behavioural-based trainings to build sustainable and effective boards is also crucial, ” said the institute’s president and chief executive officer Michele Kythe Lim (pic below) at the online launch of the review.

ICDM President Michele Kythe LimICDM President Michele Kythe Lim

Lim also pointed out that other measures boards can adopt include establishing a rigorous evaluation and feedback mechanism to enable meaningful board collaboration and periodic refreshment.

It must also ensure that its structure, composition, and culture continue to be aligned with the business landscape and the company’s strategic goals in the short- and long-term.

Another recommendation was the nomination committee (NC) should retain oversight of the board’s overall leadership refreshment and development, to ensure it has not only the technical competencies, but also the right mindsets and behaviours to be effective amidst the intensity of change.

“Corporate secretaries should serve as strategic advisors and partners to boards.

“Hence, they should work proactively with the NC chair to drive the desired board practice outcomes and actively stay up to date with the latest corporate governance trends, methodologies and resources to execute their strategic role effectively, ” she added.

The review aims to establish paradigms and standards for Malaysian boards through a deeper overall understanding on prevailing industry culture, practices and processes relating to board nomination, selection, appointment and evaluation.

The review explored feedback and insights from over 100 local public listed companies, covering 799 board members, across large (39%), mid (9%) and small (52%) market capitalisations and industries.

These include industrial products and services, consumer products and services, property, technology, construction, plantation, telecommunications and media, utilities, healthcare, energy, financial services as well as transportation and logistics.

The review also examined common practices and key appointment and reappointment considerations of independent directors, board evaluation, as well as board training and development.

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