Since the last revision of the Malaysian Code of Corporate Governance (MCCG) in April 2017, there has been considerable progress in this area in the country. In 2018, the country rose to fourth place in the CG Watch Report , a report from the Asia Corporate Governance Association, up from seventh place.
Malaysia is driving further change.
Datuk Johan Idris, managing partner, KPMG Malaysia , writes: “Once the exclusive domain of cerebral academics and specialist analysts, directors” has slowly but surely crept into public consciousness . The importance of corporate governance has since gained traction. It is now common to see directors’ remuneration in the spotlight, and the print media periodically.
More transparency about remuneration in Malaysia
Now the Corporate Governance Monitor (CGM) for 2019, a report published in April 2019 by the Securities Commission of Malaysia, published the 20 highest CEO salaries in the country – this instant generated controversy amongst professional investors.
Sri Shahril Shamsuddin, CEO of Sapura Energy, is the second-highest paid executive executive in the country with a total pay package of RM71.92 million ($ 17.2 million) for the financial year 2018. During the same year, the company suffered losses of RM 2.5 million, according to the report.
The Malaysian Minority Shareholders Watch Group has been outraged at the news, complaining that it has been repeatedly ignored.
In fact, there is no ‘Say-on-Pay’ in Malaysia. But the Code mandates improved transparency on reporting executive remuneration; the five top executives at the company.
This will unquestionably give shareholders a chance to voice their reactions, and thus to make them heard.
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Technology boosts transparency about governance
The Corporate Governance Monitor is a major step forward for the country.
“In 2017, the Securities Commission Malaysia (SC) announced the development of an internal web-based system that leverages advanced analytics capabilities to analyze both quantitative and qualitative data on corporate governance. “The SC’s use of technology is a critical enabler for monitoring and analyzing corporate governance policies and practices, and the results of which are published in the CGM.”
The company is adopting corporate governance, quality of reporting, and the most pressing issues that need to be resolved.
More women on boards
The new Code of Corporate Governance for Malaysia has an original approach to compliance:
- The Code is based on good governance, which are board leadership and effectiveness; effective audit and risk management; Integrity in corporate reporting and meaningful relationships with stakeholders.
- 36 ‘practices’ are elaborated, based on the Principles, along with additional ‘Step Up Practices.’ These are both clearly explained, and a specific ‘outcome’ is indicated for each practice. Companies must either apply the Practices as Indicated, or explain. This leaves less wiggle room than the traditional ‘Comply or explain’ approach, while still avoiding a ‘check-the-box’ approach.
The good news is that 27 of the MCCG’s Best Practices had an adoption level of 70 per cent, according to the report. This means more than 70 per cent of the 841 listed companies had applied these practices.
This includes substantial progress in boardroom diversity: As of the end of 2018, every business on the stock exchange has at least one woman director. For a developing country, this is a very unusual statistic.
From December 2016 to December 2018, there is a 7 percentage point increase in the number of women on the boards for the top 100 listed companies (from 16.6 percent to 23.68 per cent) and a 4 percentage point increase (from 12 per cent to 15.69 per cent) for all listed companies.
What’s more, 74 per cent of the companies listed at least one step up practice. These include a nine-year tenure limit for non-executive directors, full reporting and a detailed explanation of each member of senior management – not just the CEO and top five executives.
Another Step Up Practice is the promotion of effective audit and risk management. It is recommended that the Audit Committee should include independent directors. The board is also encouraged to establish a Risk Management Committee, which comprises a majority of independent directors, to oversee the company’s risk management framework and policies.
Malaysian Corporate Governance evolves rapidly
The new Corporate Governance Code has already succeeded in driving important changes in Malaysian corporate frameworks. As we’ve seen, reporting is deeper and more meaningful, and more companies are complying with best practices. The obligation to achieve a specific outcome, independent of compliance or alternative arrangements, wants to achieve improvements in practices.
But the evolution of corporate governance in Malaysia is rapid, and boards of directors need solid support, but not to achieve compliance.
Diligent keeps boards up-to-date in corporate governance
Diligent Corporation is an industry leader in governance software. After creating a highly secure board portal system, diligent continued to assess the needs of boards of directors of all kinds. An electronic self-assessment tool designed to streamline and enhance the process of self-assessment performance. The self-assessment tool is part of a suite of electronic solutions called Governance Cloud that provides best practices for total enterprise governance management.
The software developers at Diligent Corporation focus on the common problems with board self-assessments. The developers kept their best practices in mind when considering such issues as functionality, security, ease of use and automation.
Diligent’s electronic assessment tool virtually eliminates the risk of human error. The program is highly intuitive. Board administrators want to know how to do it with a few clicks.
They’ll find that Diligent’s board performance self-assessment tool saves them hours of time because it automatically tracks results and completions. The program automatically creates accurate charts and graphs boards can use for presentations.
Not only is the board performance self-assessment tool valuable for board administrators, but board directors will highly value the convenience that the program provides. They can complete the assessment at their convenience using any electronic device that’s handy. If they’re not going to be in one sitting for any reason, they can just log out of the platform and come back to it later. They can even log in conveniently, using their fingerprints.
Considering any type of electronic software, security should be a top concern for all boards. That’s why the self-assessment program contains the same high-security standards as the Diligent board portal system that thousands of corporations have come to rely on. Diligent is ISO 27001-certified for its Information Security Management System with SSAE 16 / ISAE 3402 (SOC 1, Type 2) controls audited for nine consecutive years.
Diligent’s electronic self-assessment tool. The process is easier, more cost-effective and more convenient.
Diligent Governance Cloud: A reliable tool for achieving compliance
The Governance Cloud, the only integrated enterprise governance management system, is an organization that seeks to achieve best-in-class governance, is an ecosystem of software tools. Stringent, the scope of governance evolves. The Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need.
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