ON the local front, beset with a plethora of challenges, especially the lack of transparency and governance relating to poor investment decisions leading to excessive exposure to risky financial practices as well as a spate of corporate scandals and the 1997 financial crises, the Securities Commission (SC) issued the Capital Market Masterplan in 1999.
This was followed by the Malaysian Code on Corporate Governance (MCCG) in 2000. Subsequently, Bank Negara Malaysia (BNM) published the Financial Sector Masterplan in 2001.
Since then, the MCCG has undergone various revisions over the years, covering strengthening of Board composition, setting up of risk management committees, requirement of 30% women representation on the Board, and so forth.
The Companies Act 2016 (CA 2016) codifies the general principles of corporate governance.
Section 213 of the CA2016 provides that “every director of a company is under a duty to at all times, to exercise his powers for a proper purpose and in good faith in the best interest of the company”.
Other legislations that cover Corporate Governance legal framework include, the Capital Markets and Services Act 2007 and the Listing Requirements of the Stock Exchange (Bursa Malaysia).
Other institutions that are involved in the promotion of corporate governance include the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA), Malaysian Institute of Corporate Governance, Institute of Corporate Directors Malaysia, Professional bodies, Minority Shareholders Watchdog Group and a few others.
Auditors also support better corporate governance practices through ensuring transparent financial reporting.
Strengthening the various instruments on corporate governance is Section 17A of the Malaysian Anti-Corruption Commission Act 2009, which came into force on Oct 1, 2018.
This section identifies corporate liability and corrupt practices acts committed by company’s staff and third-party vendors.
In effect, this requires companies to put in place adequate governance and control procedures.
For listed companies, the procedures on whistleblowing are also recommended.
Good corporate governance in the local public sector Just as the private sector is governed by various rules and regulations regarding good governance, it is equally important for the public sector to adhere to sound governance principles, with integrity at all levels, given the fact that civil servants play a significant role in public administration.
They are custodians of public funds and are thus accountable to the public they serve.
There is a Green Book for Directors of PLCs, which establishes guidelines for GLC Boards and which augments the existing Malaysian Code of Corporate Governance.
Perhaps a similar book should be published for civil servants and government officers to bring to their awareness all aspects of good governance.
The Star, in its issue dated Wednesday, March 29, 2023, had reported on plans by the Prime Minister to set up an independent body to investigate cases or complaints made against enforcement agencies, rather than the agencies themselves conducting the investigation.
From a governance standpoint, this is a good proposal as there will be independence and transparency, auguring well for the credibility of Malaysia.
Ethics and values
While a company strives for success as well as to be performance driven, it should be borne in mind that espoused culture of the organisation is a critical element in the long- term success of any business.
Organisational culture is about the prescribed behaviour which reflects the values, beliefs and ethics of a business.
Quite often, a distinctive organisational culture can help to distinguish an organisation from its competitors and hence a possible enabler for success.
A deluge of corporate scandals in recent years has brought to light the importance of ethics and good corporate governance.
In a global economy, the subject of ethics and good corporate governance can be said to be borderless as it cuts across many countries.
Doing the right thing never changes wherever you may be. Purpose and values embrace both strategy and behaviour. Together, purpose and values shape an organisation’s culture.
When the purpose is inspiring and values are acceptable by everyone in the organisation, it acts as a multiplier effect and correspondingly the organisation creates long- term sustainable value for all its relationships.
In summary, the role of ethics is pivotal to good governance.
Simon Yeoh is the president of the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA). The views expressed here are the writer’s own. Stay tuned for Parts 2 and 3, which will be published in the upcoming issues of StarESG.