Board members under pressure?

WITH the changing and evolving regulatory, compliance, and governance framework, board members are increasingly under pressure to perform.

The pressure is on top of the fiduciary duties that a board member must uphold, as well as ensuring the company’s business strategy and financial management are well articulated and robust.

With technological advancement and increasing need for boards to have clear oversight, the question that was put forth in the recent Institutional Investors Council Malaysia’s (IICM) Corporate Governance Conference 2026 was: Do we drive board effectiveness through renewal and talent scouting?

Succession planning

It is a well-known and understood concept that the nomination committee (NC) of any board plays a crucial role in ensuring there is continuity in the company’s business direction via the appointment of board members who are retiring due to term limits or any other reasons.

Hence, given the need to have a balanced skill set at the board level, it is imperative that the NC is given a clear mandate to source the right candidate.

It is a well-recognised fact among listed companies, especially with respect to the search for an independent non-executive director (INED), that there is a tendency for the new board member to be someone who is known to existing board members or even someone within the business network.

While they may very well qualify based on Bursa Malaysia Listing Requirements that have clearly defined the meaning of an INED, it is important to onboard a candidate that is more than just ticking all the boxes, as an INED needs to be independent not only in form, but also in substance.

External sources

Outside the circle of friends and business network, there are other avenues available for an NC to explore in search for a new INED.

This includes the use of the Institute of Corporate Directors Malaysia or FIDE Forum (for financial institutions) talent pool, which goes through a vigorous process in identifying the right candidate, as well as other potential leads that the company could use.

In essence, to replace a board member, the NC should explore beyond the traditional and known connections to ensure that the board is equipped not only with the right skill set, but one that is able to meet the challenges that the board faces today, especially the regulatory and governance framework.

The NC should go through a vigorous vetting process to ensure the right candidate is appointed, and this can be done much more professionally if a few candidates are evaluated and not just a single name.

Age matters

It is a known fact that boards today comprise mainly of those who had retired from their full-time employment, and are likely to be above 60 years of age, especially among large listed companies with market capitalisation in excess of RM4bil.

Yet, there is a need for boards to have diversity in terms of the age of board members, as younger candidates would be able to bring a more relevant perspective, especially in the age of technological advancement and artificial intelligence (AI).

Boards should be practical in having INEDs who sit on multiple boards, especially if these boards are all large listed companies.

We should also stop the idea of recycling some of them from one board to another as though Malaysia lacks talent.

While a director is allowed to sit on five public-listed companies and an unlimited number of private entities, there must be greater scrutiny on whether the potential new INED would have the required time commitment to serve the new board effectively.

Perhaps, the regulators should review the number of board seats for an INED to sit on to just two for large listed companies, defined as those with more than RM2bil in market capitalisation, but still allowed to sit on up to five in total.

KPIs

While it is a common practice for key performance indicators (KPIs) to be used to evaluate the performance of management, the same is very rarely done for boards.

Board evaluation that is presently carried out among board members also lacks credibility in most cases, as it is done internally and seems more of a box-ticking exercise meant solely to meet regulatory demands as well as for the purposes of disclosure in a company’s annual report.

Board evaluation should and must be taken more seriously, and this should be carried out by an external party as it will be more vigorous, objective, and transparent.

For board members, it is also imperative that they are being objective and with the right constructive response. Board members need to voice out dissatisfaction if they see a board is not functioning professionally.

As for KPIs, board members too should be assigned KPIs, and this must be part of the board evaluation process.

For INEDs, KPIs that can be assigned to them include the level of participation at the board and board committee level, as well as idea generation and contribution to the board and company.

COI and RPT

Another two key issues that place board members under pressure are issues related to conflict of interest (COI) and related party transactions (RPT).

While both of these are clearly defined by the regulatory guidance, practising them in real life can be a challenge, especially in matters that involve a controlling shareholder(s).

In the case of COI, board members must make a clear stand when there is not only an apparent conflict, but also in situations where there is potential or perceived conflict. There must be a documented process to deal with the matter, and the decision to manage the COI or potential COI is well documented.

In the case of RPT, INEDs play a crucial role in ensuring that any RPT is not detrimental to minority shareholders, and in situations where the INED is unsure, they have a right to seek professional expertise that will enable them to make an informed decision.

The INEDs cannot yield to the demands of a controlling shareholder(s) when it comes to COI or RPT matters.

In conclusion, in the age of AI – a fast-moving geopolitical and economically challenging environment – not only companies, but board members too, are indeed under pressure to perform.

Having the right skill set is not enough to be a good board member, as board members today are challenged to perform well and, at the same time, ensure they adhere strictly to governance and regulatory demands.

In this regard, the role played by the NC cannot be undermined or compromised for the work involved in board appointments as well as the annual board evaluation.