Better governance, but more can be done

THE Securities Commission (SC) recently released the Corporate Governance Monitor 2024 (CGM), which reviewed the corporate governance practices of 1,010 companies as of Oct 1, 2024.

According to this year’s report, the total number of directors has now increased to 5,762, a 2.7% improvement year-on-year (y-o-y). Of these, 1,495 are women directors, an increase of 7.2% y-o-y.

Although still falling short of the 30% target, women now account for 26% of all directors.

This is a significant improvement compared with 21% in 2022 and 25% last year.

In the top 100 companies, women’s participation at the board level has now reached 32.2%, a 1.5 percentage point increase from 30.7% in 2023.

However, there are still gaps that can be filled.

According to the SC, 39 companies in the top 100 have yet to reach the 30% women-on-board target.

Gender-biased boards, however, have decreased, with only one company in the top 100 and eight companies among the 1,010 companies surveyed having an all-male board.

The number of companies with more than 50% women board members has now increased to 57 overall, with 10 of these in the top 100.

Currently, 61% of the top 100 companies and 37.3% of all companies have met the 30% women-on-board threshold.

Among women on boards, 69% are independent non-executive directors (INEDs), while 20% hold positions as executive directors (EDs).

Majority are

independent directors

As of the cut-off date, INEDs make up the majority of the 7,270 board positions, representing 51% of the total.

This is similar to last year’s number and slightly below the 52% level achieved in 2022.

The number of INEDs increased by 4.5% to 3,756, while the number of EDs rose by 3.6% y-o-y.

Interestingly, we saw a 0.2% reduction in the total number of non-independent, non-executive directors (NINEDs).

On a positive note, 67% of all boards now comprise at least 50% INEDs.

In with the new,

out with the old

A significant change over the past year is the influx of newly appointed directors, who made up close to 70% of total new appointments and re-elections.

However, the number of new women directors remains only marginally above the 30% target as new male directors dominated at 68.6%.

This ratio was also relatively the same for current directors re-elected to their respective boards.

Interestingly, the total number of new appointments and re-elections in the past year was 38% lower, with 790 new members against 1,276 in 2023.

The percentage of new appointments was higher last year at 73.4% and almost 40% of those appointed were women.

According to the SC, 61% or 482 of the board appointments this year were INEDs, with 64% or 307 were new appointees.

Based on the data that were presented, some 39% of the new appointees were women INEDs.

Chairmanship – a male dominant role

The role of the chairman of the board remains very much dominated by males with 93% of the companies reviewed exhibiting this gender bias.

In terms of role, INEDs make up 47% of the total chairperson positions, followed by 29% as EDs and another 24% as NINEDs.

According to the CGM, the average tenure of a chairperson is 10 years, with the longest being 53 years.

This individual is the founder of the company and has served as the executive chairman since before the company’s listing on Bursa Malaysia in 1993.

Another key consideration that needs attention is the separation of the chairman and chief executive officer (CEO) roles.

According to the CGM, some 28 companies still combine these roles, bringing into question the checks and balances within the companies, as well as the concentration of power in a single individual.

On the plus side, of the 261 companies that have an executive chairman, 60% have boards that comprise at least 50% INEDs, providing some form of balance as the board is being led by an executive chairman.

INEDs – room for

improvement

After the number of directors serving more than nine years as INEDs halved to 297 in 2023, the total has now increased again to 305.

Interestingly, despite the good governance guidance provided under the Malaysian Code on Corporate Governance, only 18% of companies have demonstrated seriousness in tackling the issue related to long-serving INEDs with a clear policy limiting tenure to nine years.

Based on the CGM report, some 233 INEDs have been serving their respective boards between 10 and 12 years as of the cut-off date.

Under the Bursa Malaysia Listing Requirements, the tenure of an INED is limited to not more than a cumulative tenure of 12 years.

Hence, these directors have only a couple of options left when their time is up.

They can either continue to serve the board as NINEDs, or resign.

The last option is shareholders will not re-elect these directors at a general meeting.

According to the CGM, some listed companies continue to violate the best governance practices with 16 INEDS serving the board between 13 and 20 years, and 11 others serving between 21 and 30 years.

Although these numbers are lower when compared to preceding years, some directors and listed companies still fail to adhere to best practices by not retiring or redesignating these long-serving directors.

Low adoption rate

Although 63% of companies have adopted the guideline that prohibits the appointment of a chairman to board committees, and there has been an increase of 185 companies doing so in the past two years, the adoption rate is still seen as relatively low.

A chairman of a board should not be appointed to any of the board committees due to the power influence factor as well as the impartiality of discussions.

While timing or legacy factors may explain some exceptions, it is hoped that companies can iron them out quickly.

Overall, the CGM showed progress, but there are still gaps that corporate Malaysia must address to improve their overall governance levels and adopt the best practices as guided by the SC.