Getting governance right

IICM Bhd, formerly known as the Institutional Investors Council Malaysia (IICM), will be hosting its annual Corporate Governance Conference on July 2, with the theme “The Corporate Governance Mandate: Rebuilding Market Trust in an Era of Uncertainty”.

The theme for this year is seen as appropriate as global capital markets faced increased volatility due to the Middle East conflict, resulting in investors re-allocating resources against a strong headwind, which brought elevated inflationary pressures, increased global uncertainty, and slower economic growth.

On the local front, the Malaysian economy remains resilient, but external uncertainties together with domestic challenges have placed the country on a fragile platform as it navigates rough seas ahead.

How do Malaysian corporates, institutional investors, and regulators navigate what is ahead to ensure the Malaysian capital market remains robust and attractive to investors?

As it is, statistics have shown that Malaysia remains under the radar when it comes to foreign investors, especially in our RM2 trillion equity market.

Although there remains considerable interest in our fixed income market, with foreign shareholding accounting for approximately 13.3% of total issuance and just under RM305bil in total holdings, the percentage of ownership has remained relatively stagnant over the last three years.

Regaining confidence

We all know that confidence plays a key role in attracting portfolio investments into any capital market. Hence, it is imperative to review the specific areas where Malaysia has been lacking or falling behind, which have caused foreign investors to exit our market or stay on the sidelines.

From the IICM perspective, the key issues that need to be addressed include improvement in governance practices as well as the sustainability journey that Malaysia has adopted.

While regulators can do much to improve governance and sustainability practices, it is also important that companies themselves take positive steps to gain the trust and confidence of investors.

The role that a board of a listed company plays is of utmost importance as it sets the tone at the top and the strategic direction to deliver long-term value.

MY Value Up programme

The recently launched MY Value Up Guidebook, jointly launched by the Securities Commission (SC) and Bursa Malaysia, is the nation’s attempt to lift investors’ interest in our large listed companies.

By and large, Malaysian listed companies have seen dwindling interest among foreign investors, with the latest foreign shareholding down to less than 19%.

The benchmark global index, the MSCI Emerging Market Index, has also reduced the number of Malaysian constituents to just 21 from 27.

This calls for urgent attention from large listed companies to take positive steps and address the shortcomings identified to promote their respective profiles.

They have to address the gaps, especially in relation to investor relations activities, and boards need to take heed in setting key performance indicators which must not only be measurable, but also relevant and achievable.

Often, in the case of our listed companies, earnings delivery has been rather poor, as companies often fail to meet earnings forecasts projected by analysts, leading to downgrades in price targets as well as calls.

Boards play a crucial role in communicating and addressing the gaps that a listed company has, to establish new milestones that a listed company should focus on and deliver.

Talent and skillset

With 5,849 board members sitting on 7,355 positions as of Oct 1, 2025 (based on the SC’s Corporate Governance Monitor 2025), board members are indeed significant influencers when it comes to setting the tone at the top and rightly framing the business and strategic direction of a listed company.

Hence, having the right talent mix and experience is crucial for any listed company. The selection process via the nomination committee must be robust and diligent in evaluating a potential candidate, who must have the right skillsets that will complement the board’s existing strengths (and weaknesses).

Having said that, succession planning too is crucial to ensure continuity, supplemented with a remuneration package that is reflective of legal liabilities as well as time commitment.

In addition, with an ageing pool of directors and directors who sit on multiple boards, there is a greater need to have the right pipeline when it comes to new and younger directors who are ready to assume the role of a board member, especially in this digital and artificial intelligence age.

Of utmost importance is identifying the right candidate when it comes to selecting an independent director, as the person must not only fulfil the criteria set out in Bursa Malaysia Listing Requirements, but must be truly independent both in form and substance.

There must be greater usage of an independent scrutineer to ensure a newly onboarded director is truly independent.

ESG practices

While Malaysia remains committed to meeting climate change goals and listed companies are now well guided in terms of reporting under the National Sustainability Reporting Framework, the increased disclosure requirements will likely be the next hot topic when it comes to environment, social and governance (ESG) practices.

Similar to how investors scrutinise financial statements, sustainability-related financial disclosures and climate impact will now be under the microscope of investors looking to invest in listed companies and question ESG practices at the same time.

The biggest challenge is, of course, differentiating these disclosures as to whether they are credible ESG practices or simply greenwashing or social washing.

Hence, ESG disclosures must be certified via the issuance of assurance by a credible and certified ESG practitioner.

With higher reporting standards, there is also a greater need to understand the costs associated with ESG practices and whether a company can truly deliver risk-adjusted returns.

Market volatility

Market volatility has become the norm globally, and it is no different in Malaysia.

With external uncertainties and domestic challenges, what differentiates one company from another could simply boil down to corporate governance practices, which could shield a company from experiencing greater market volatility.

Slowing economic momentum can result in greater volatility, but a company guided by an experienced and talented board will be able to navigate challenges much better than its competitors.

Hence, listed company boards ought to be more strategic in terms of long-term planning as well as navigating a company’s business direction in times of uncertainty.

In this context, even institutional investors can play a crucial role in providing positive engagements and acting as strategic partners in shaping long-term value.

In conclusion, the one-day Corporate Governance Conference on July 2, 2026 is expected to help stakeholders identify key gaps in the current regulatory and governance framework, and for companies to adopt best practices to ensure Malaysia remains relevant not only in the eyes of domestic and foreign shareholders but also to elevate Malaysian listed companies’ deliverables.