Public listing means accountability

BY now, I am sure most people would have heard about or watched snippets of the press conference by the Football Association of Malaysia regarding the “naturalised” football players controversy.

I must commend the on-site journalists, who were extremely professional in exercising their duty by asking questions in their bid to extract the truth behind a national scandal that has embarrassed Malaysia on the global stage.

There are many layers to this issue, which shall not be discussed in this column.

It made me wonder if listed companies’ AGMs or prospectus launches of new initial public offerings (IPOs) in Malaysia were conducted in a similar manner, how vibrant would our capital markets be?

For a long time, minority shareholders – especially retail investors – have been powerless in the face of corporate exercises conducted by listed companies due to overwhelming control by majority shareholders.

This has become a market norm. However, should it be the case?

As capital markets develop and grow, proper corporate governance ought to be a necessity rather than a nice-to-have.

It takes two to clap, and apart from the roles of the companies themselves, investors or shareholders have an equally important role to play.

This includes asking the right questions, demanding answers and insisting on the best practices.

Accountable to the public

Minority Shareholder Watch Group (MSWG), a non-profit professional body licensed under the Capital Markets and Services Act 2007 and funded by the Capital Market Development Fund, was set up in 2000 as a government initiative to raise awareness of minority shareholder interests and corporate governance issues through stakeholder engagement.

It has done a very good job over the years and has consistently acted in the best interests of the “little guys”.

According to Dr Ismet Yusoff, chief executive officer of MSWG, the team attends up to 400 AGMs in a year and raises pertinent questions to listed companies on behalf of shareholders – no small feat, considering there are over 1,000 listed companies on Bursa Malaysia.

Covering that many companies with limited resources is no easy task.

From my observation, one of the biggest issues with listed companies is that majority shareholders often run them as if they were private entities, by virtue of their control.

The failure to recognise that a listed company is accountable to the public is bewildering.

Too often, majority shareholders just do whatever they please so long as they can justify it on paper, with little regard for the interests of other shareholders.

This can range from charging personal expenses to the company to engaging in questionable related-party transactions – such as leasing private jets or selling luxury condominiums through the listed entity.

The principle is quite straightforward: if a company is to be run entirely on the whims and fancies of its majority shareholders, then it should not be listed in the first place.

Role of independent directors

Malaysia even has a Code on Corporate Governance that outlines best practices and a control framework for companies, particularly listed ones.

The purpose of this framework is to prevent conflicts of interest, enhance board processes, and strengthen board oversight. In effect, it positions the board as the guardian of a listed company.

Among board members, independent directors play the most crucial role in safeguarding the interests of minority shareholders.

Unfortunately, we are not seeing many independent directors stepping up to the responsibilities expected of them.

Quite a number appear content to draw their annual remuneration while acting as yes-men to majority shareholders.

In many cases, they are beholden to the controlling shareholders who appoint them, unwilling to risk losing their positions – or their income – by asking too many difficult questions.

They tend to subscribe to the notion that “nobody likes a busybody”.

This is why we see the same independent directors sitting on more than 10 boards of various listed companies.

Clearly, many of these appointments are based not on merit, but on compliance and loyalty.

If that is the case, where does it leave minority shareholders?

A fellow fund manager once suggested that independent directors should be remunerated based on share price performance rather than a fixed stipend.

Aligning their interests with those of minority shareholders could be the key to ensuring that independent directors act in a more responsible and accountable manner.

Shareholder activism

Very often, the only boardroom drama we see in corporate Malaysia involves tussles for control – whether between siblings or partners, rival syndicates vying for influence, or family disputes spilling into listed companies.

These are not examples of shareholder activism; they are simply personal interests at play.

True shareholder activism means voicing matters of genuine concern to shareholder interests, regardless of how big or small a shareholder’s stake is in a listed company.

It encompasses any issue that ultimately benefits the company – from advocating stronger environmental, social, and governance practices to championing employee welfare to pushing for enhanced shareholder value.

While there have been improvements, we still see shareholders questioning the board during AGMs on trivial matters such as the quality of door gifts or buffet meals.

If we are serious about enhancing shareholder returns and avoiding “lost decades” on Bursa Malaysia, shareholder activism must be stepped up.

Voting and engagement cannot be left solely to those with deep pockets. It requires many moving parts – and collective participation – to compel majority shareholders and management to get their act together.

Best interest of the minority

I am a firm believer in harnessing the power of the capital markets. I have always encouraged business owners to take their companies public once they reach a certain scale or maturity.

The reasons are many – access to capital and ease of fundraising, succession planning through institutionalisation, future growth and expansion, and the separation of business and personal liability, among others.

These are the clear benefits of going public.

On the flip side, a public company comes with rules, controls, scrutiny, and oversight.

To enjoy the benefits of being listed while avoiding the responsibilities that come with it is an oxymoron. One simply cannot have their cake and eat it too.

Therefore, if an owner intends to go for an IPO, it is imperative to always prioritise the best interests of minority shareholders.

That should be the guiding principle in running a public company.

By doing so, not only will you earn the public’s trust, but the reputation that follows will enhance shareholder value and justify a valuation premium over peers by virtue of good and responsible governance.

Our fund, for one, would not hesitate to pay a premium and hold for the long term any listed company that demonstrates honest and capable management.