TOPIC 4:

Development of Corporate Governance

Additional References:
• Bursa Malaysia Listing Requirement:
http://www.bursamalaysia.com/misc/system/assets/5957/MAIN_Chap15_CA_fair_2Jan2018.pdf
• MICG: http://www.micg.org.my/
• Companies Act 2016:
http://www.federalgazette.agc.gov.my/outputaktap/aktaBI_20160915_CompaniesAct2016Act777.pdf

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Course Outcomes
At the end of this topic, students should be
able to:

CO2: Review the development of corporate

governance in Malaysia and the latest corporate
governance requirements to solve organisational
problems.

Quiz 2 (5%)

Assessment:

Assignment

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Corporate governance is the system of
rules, practices, and processes by
which a company is directed and
controlled.

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CORPORATE GOVERNANCE IN UK

The Cadbury Code The Greenbury The Hampel Report

(1992) Report (1995) (1998)

Internal Control : Securities The

Guidance for Directors Turnbull Report The 1998 Combined
on the Combined Code
by Financial Reporting (1999) Commission Code
Council (FRC) (2005) Guidelines

The UK
The 2018 Corporate Corporate
FRC’s Risk
Governance Code
Guidance (2014)
(the Code) Governance Code
2024

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 CORPORATE GOVERNANCE IN UNITED STATES (US)
Sarbanes-Oxley Act

The collapse of Enron Corporation, WorldCom and Global Crossing has caused the US
government to introduce Sarbanes-Oxley Act in 2002.

Content SOA:

• requires the inclusion of independent directors in the audit committee.

• emphasizes on directors’ duties and audit quality.
• provides guidance on financial reporting and accounting services.

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 REVIEW OF CORPORATE GOVERNANCE IN MALAYSIA

Source: https://themalaysianreserve.com/2021/09/22/malaysias-corporate-governance-remains-
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progressive/

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CORPORATE GOVERNANCE FAILURE CASE IN MALAYSIA: 1MDB

Source: https://www.theguardian.com/world/2023/mar/09/roger- Source : https://www.thestar.com.my/news/nation/2018/12/18/1mdb-

ng-goldman-sachs-banker-malaysia-1mdb-fraud malaysias-extraordinary-financial-scandal/ 7

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 CORPORATE GOVERNANCE IN MALAYSIA
LACK OF CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE
TRANSPARENCY IN FINANCIAL REPORTING REFORMS

BEFORE CRISIS AFTER CRISIS

Economic crisis
Companies Act 1965
The Act covers issues concerning corporate structures, in 1997/98
CONTENTS 3. Minority
1. Malaysian
disclosures, reporting requirements and duties and Institute of Shareholders
2. Bursa Malaysia
responsibilities of company directors and officers. Corporate Watchdog Group
Governance (MICG) (MSWG)
Kuala Lumpur Stock Exchange (KLSE) Listing
Requirements 6. introduce
4. Companies
to ensure market for public listed companies’ securities is 5. Securities provisions
Commission of
transparent Commission (SC) governing whistle
Malaysia (CCM)
blowing
Securities Commission Act 1993
promotes a healthy securities market and to maintain the
investors’ confidence in Malaysia 7. Audit Oversight
Board (AOB) Detail in next slide

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 CORPORATE GOVERNANCE REFORMS
1. MALAYSIAN INSTITUTE OF CORPORATE GOVERNANCE (MICG)
• The MICG was set up as a corporation limited by guarantee, with founding members
consisting of the following:
• Malaysian Institute of Accountants (MIA)
http://www.micg.org.my/

• Malaysian Institute of Certified Public Accountants (MICPA)

• Federation of Public Listed Companies (FPLC)
• Malaysian Institute of Chartered Secretaries and Administrators (MAICSA)
• Malaysian Institute of Directors (MID)
• The MICG’s responsibility is to raise the awareness and practices of good corporate
governance in Malaysia.

2. BURSA MALAYSIA
• most important regulator of the capital market in Malaysia.
https://www.bursamalaysia.com

• Bursa Malaysia has taken a leading role in improving the standard of the corporate
governance practices in Malaysian public listed companies.
• Introduce BMLR (Bursa Malaysia Listing Requirement)
https://www.mswg.org.my/

3. MINORITY SHAREHOLDERS WATCHDOG GROUP (MSWG)

• to ensure that the interests of minority shareholders of public companies are

safeguarded.

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CORPORATE GOVERNANCE REFORMS
https://www.ssm.com.my/Pages/Home.aspx

4. COMPANIES COMMISSION OF MALAYSIA (CCM)

• act as an agency to incorporate companies and register businesses.

• responsible to disseminate company and business information to
the public.
• Introduce Companies Act.

The Companies Act 1965 outlined the legal basis on how

companies are established, functioned and managed.
Companies Act 2016
Clarifying the relationship between the board of directors and shadow directors
Clarifying the minimum age for directorship i.e. 18 years old and abolishing the
maximum age for directorship
Appointment or re-appointment of directors will be based on their qualifications and
merits (Next slide)
Enhancing the rules relating to disqualification of director

Revising the residency requirement for directorship

Stricter rules relating to directors’ remuneration

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 CORPORATE GOVERNANCE REFORMS
https://www.sc.com.my/

5. SECURITIES COMMISSION MALAYSIA (SC)

• The SC believes that the successful development of a corporate
governance environment is premised on a dynamic mixture of
the Corporate Governance Ecosystem.
• Establish MCCG and its amendments.

MCCG 2000 MCCG 2007 MCCG 2012 MCCG 2017 MCCG 2021 Detail in next slide

Reasons for MCCG updates

Shifts are unavoidable and necessary requirement to deal with market dynamic

improve the role and the responsibilities of directors

Promoting board structure effectiveness

Aligned with globally recognised best practices and standards

Promoting greater internalisation of corporate governance culture

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 CORPORATE GOVERNANCE REFORMS
MCCG 2000 MCCG 2007 MCCG 2012
Purpose significant tool for corporate to ensure that it remains relevant and aligned with globally recognised best
governance reform practices and standards.
Detail The MCCG is similar to the to enhance Part 2 of Best Practices in to enhance the board effectiveness.
Combined Code (UK). Corporate Governance
sets out EIGHT BROAD PRINCIPLES
The code is divided into FOUR parts; The code is divided into THREE parts; together with the recommendations
• PART 1 - principles and board • PART 1 - Principles (eg: • directors,
Principle
practices of good corporate directors’ remuneration, shareholders,
Principle 1: Establish clear board’s roles and
governance accountability and audit) responsibilities
Principle 2: Strengthen the composition of
• PART 2 - Best Practices in • PART 2 - Best Practices in Corporate nomination and remuneration committees
Corporate Governance Governance (eg: effective directors’ Principle 3: Reinforcement of directors’
responsibilities, separation of chairman independency
• PART 3 - role of institutional and ceo’s role and composition of Principle 4: Foster the commitment of directors
shareholders in corporate independent non-executive directors)
governance Principle 5: Uphold the audit committee
• PART 3 - Principles and Best Practices integrity in financial reporting
• PART 4 - the explanatory notes for Other Corporate Participants (eg: Principle 6: Recognition and management of
risks
shareholder voting, effective dialogue
between companies and investors and Principle 7: Ensure timely and quality disclosure
evaluation of governance disclosures)
Principle 8: Strengthen the relationship
between the company and shareholders

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 CORPORATE GOVERNANCE REFORMS
MCCG 2017 MCCG 2021
Purpose to promote greater internalisation of corporate To improve board policies and processes including selection,
governance culture. compensation and appointment

Detail Key features of the new approach are: The MCCG 2021 update focused on:
• The Comprehend, Apply and Report (CARE)
• The shift from comply or explain to apply or explain an Board policies and practices on the selection and nomination
processes/criteria for directors
alternative
• Greater focus and clarity on the intended outcomes for each
practice Further guidance for practices with low levels of adoption as reported
• Identify exemplary practices which support companies in in the SC’s annual Corporate Governance Monitor reports.
moving toward greater excellence
Focus on the role of the board and senior management in addressing
sustainability risks and opportunities of the company (managing
The MCCG 2017 has been divided into THREE ESSENTIAL PRINCIPLES: Environmental, Social and Governance (ESG))

discourages the appointment of active politicians on the boards of

Principle A: Principle B: Principle C: listed companies.
Board Integrity and
Effective Audit
Meaningful
Leadership and and Relationship with
Effectiveness Management Stakeholders recommends that the two-tier voting process be implemented for re-
appointment of independent directors with tenures of more than nine
•Board responsibilities •Audit committee •Communication with
stakeholders years.
•Board composition •Risk management and
•Remuneration internal control •Conduct on General
Meeting
all listed companies to have boards that comprise at least 30% women
directors.

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Source: Securities Commission Malaysia
Corporate Governance
Strategic Priorities 2021-2023
The Corporate Governance Strategic Priorities 2021 – 2023 (CG
Strategic Priorities) is a critical component of the Capital
Market Masterplan 3 (CMP3), anchored on six key
development and regulatory priorities. The CG Strategic
Priorities will focus on five thrusts and 11 strategic initiatives
to among others, strengthen board capacity in addressing
sustainability, scale up investor stewardship, enhance
availability of corporate governance (CG) data through the use
of digital tools, and further develop the collaboration with
universities to deepen engagement with youth on corporate
governance.

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 CORPORATE GOVERNANCE CHALLENGES FOR 2024
In 2024, companies are expected to face increased pressure to integrate ESG factors into their decision-making processes.

https://www.nst.com.my/amp/business/insight/2024/01/999784/corporate-governance-challenges-2024
https://www.diligent.com/resources/blog/corporate-governance-trends

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 CORPORATE GOVERNANCE FAILURE : IMPLICATION

Source : https://www.malaysia-today.net/2017/06/14/fgv-failure-to-appreciate-corporate-governance/
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https://www.theedgemarkets.com/article/haris-fadzilah-step-down-fgv-group-ceo-may-15

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 CORPORATE GOVERNANCE FAILURE : IMPLICATION

Source: https://asklegal.my/p/malaysia-tabung-haji-fund-money-hajj-muslims-dividend 17

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 SUMMARY - TOPIC 3

CG in UK & US
CG Reform
TOPIC 3

CG in Malaysia
MCCG Updates
CG Failure : Evidence
Cases in Malaysia

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 SUMMARY CG REFORMS IN MALAYSIA
Year Corporate Governance Reforms
1998 • High level Finance Committee (FC) conduct a detailed study on CG.
• Establishment of MICG.
1999 • Malaysian Code on takeovers and mergers replace the Malaysian Code of 1987.
• PLCs were required to submit Quarterly Reports.
2000 • Establishment of MCCG
2001 • The KLSE issued its revamped listing requirements.
• Establishment of the Minority Shareholders Watchdog Group (MSWG).
• Directors of PLCs were required to undergo training-Mandatory Accreditation Programme (MAP).
• The Audit Committee must have a member who is financially trained.
2004 • Amendments to securities laws to inter alia introduce provisions governing whistle blowing.
2007 • MSWG Guide of Best Practices for Institutional Shareholders.

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 SUMMARY CG REFORMS IN MALAYSIA
Year Corporate Governance Reforms
2010 Audit Oversight Board (AOB) was introduced.
2011 • CG Blueprint 2011 was introduced.
• ASEAN Corporate Governance Scorecard: Country Report & Assessment was introduced.

2012 Amendment of MCCG (MCCG 2012).

2014 SC established Malaysian Code for institutional investor
• application of the Code by institutional investors encourages good governance and long-term sustainability of
their investee companies which spurs further development of the capital market.
• Sources: https://www.sc.com.my/api/documentms/download.ashx?id=9f4e32d3-cb97-4ff5-852a-6cb168a9f936
2016 • Introduction of Companies Act 2016.
• Amendment of Bursa Malaysia Listing Requirement (BMLR).
2017 Amendment of MCCG (MCCG 2017).
2018 SC introduced Corporate Governance Strategic Priorities 2017-2020
• an extensive review by the SC on the state of corporate governance of public-listed companies (PLCs) in
Malaysia.
• There are five strategic priorities took into account the growing need for companies to address the
converging interest of corporate citizenship, social and environmental concerns.
Sources: https://www.sc.com.my/api/documentms/download.ashx?id=7373ce94-78e9-456b-9b8f-c7749f11c08c

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 SUMMARY CG REFORMS IN MALAYSIA
Year Corporate Governance Reforms
2019 • Start to published CG Monitor (one of priority from Corporate Governance Strategic Priorities 2017-2020)
• Produce CG monitor for 2019 & 2020.
Sources: https://www.sc.com.my/api/documentms/download.ashx?id=98f99389-e438-4546-85e4-754717fa56ed (2019)
https://www.sc.com.my/api/documentms/download.ashx?id=ff69ce0d-a35e-44d4-996a-c591529c56c7 (2020)
• CG monitor is an annual publication by the SC on the overall state of play in relation to the adoption of the Malaysian
Code on Corporate Governance (MCCG), quality of corporate governance disclosures and observations from selected
thematic reviews for the year.
2020 SC issued Guidance and FAQs on the Conduct of General Meetings for Listed Issuers. (Date Issued: 18 April
2020), (Revised: 1 June 2021)
• to guide all companies listed on Bursa Malaysia Securities Bhd on the conduct of general meetings during a
period when the MCO is in place
• Source: https://www.sc.com.my/api/documentms/download.ashx?id=c5fbbbcd-3ab0-40ce-a22b-e8bb1d1fe0a8
April 2020 – established Corporate Governance Council
• The establishment of the CG Council is in line with the SC’s Corporate Governance Strategic Priorities (2017-2020) which
seeks to enhance Malaysia’s position as a market with strong corporate governance framework and culture.

Revised MCCG 2021 – effective on 28 April 2021

2021 Corporate Governance Strategic Priorities 2021-2023 (https://www.sc.com.my/api/documentms/download.ashx?id=af3db29d-3728-4abf-
b9e2-5fe8b98ebed5)

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THANK YOU
ANY QUESTION??

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