Captures the progress of corporate governance in Malaysia and the present issues and challenges

1. The Journey of
Corporate Governance
in Malaysia, So Far
Nik Mohd Hasyudeen Yusoff
27 October 2016

2. Agenda
• Business and governance
• Corporate governance in practice
• The journey of corporate governance in Malaysia
• Reality check - ACGA recent observations
• The way forward

3. Your
Business
Your
Customers
Your
Customers
Your
Customers
Your
Suppliers
Your
Network
Partners
Your
Competitors
Your
Competitors
Business and Governance:
The ever-changing marketplace and complex business relations
Relevant public institutions
Economy
Environment
Technology
Politics
Society

4. RegulatorsShareholders Lenders
Stakeholders
Corporate governance Business governance
Internal control
Assurance
Strategy
People
Process
Finance
Sustainable
Enterprise
Board and management
Conscience Competence
Role and structure
Risk management
Customers
Compliance
Stewardship
Board sets tone and
oversees management with division of
responsibilities based on the delegation
made by the board
Culture
Business development
Business and Governance:
A snapshot of the views from the boardroom

5. Definition
• The process and structure used to direct and
manage the business and affairs of the company
towards business prosperity and corporate
accountability with the ultimate objective of realising
long-term shareholder value, while taking into
account the interest of other stakeholders
• Principle-based which allows the principles and best
practices to be applied based on the situations and
circumstances faced by companies
Corporate Governance in Practice

6. Board
Corporate Governance in practice:
Setting up an effective board
Nomination and
remuneration
committee
Audit committee
Nomination
and
succession
Remuneration
Performance
Evaluation
Risk
management
Internal
control
Financial
reporting and
audit
Purpose,
values and
risk appetite
Strategy and
business
models
Disclosure
and
communication
Performance
targets and
assessments
Conduct and
compliance
Human
potential
development
Capital
structure and
dividend
policy
Delegation,
key policies
and
procedures
Performance is driven by having the right balance of competent
and conscientious members who lead and make decisions based
on quality information in compliance with robust process and
having adequate check and balance

7. Role in financial reporting Role in financial reporting
Assess control
Engage auditors
Apply policy
Control effectiveness
Prepare financial statements
Facilitate audit process
Set policy
Review financial statements
Audit Committee Management
Set the tone on financial reporting
Approves financial statements based on
the recommendations of audit committee
Clear division of responsibilities
based on delegation by the board
Board
Corporate Governance in practice:
Getting Financial Reporting Right

8. Role in performance
assessment
Role in performance
assessment
Set performance targets
Engage experts
Cascade policy into action plans
Meet performance expectations
Prepare performance reports
Facilitate assessments
Set policy
Review performance
Nomination and
Remuneration
Committee
Management
Set the general policy on remuneration
Approves remuneration and bonus based on
the recommendations of NRC
Clear division of responsibilities
based on delegation by the board
Board
Corporate Governance in practice:
Dealing with Remuneration and Rewards

9. Role in acquisition of
business
Role in acquisition of
business
Assess conflicts
Prepare business case
Identify source of finance
Ensure compliance with regulation
Assess risks
Review disclosure
Audit
Committee
Management
Set the general policy on acquisition
Approves acquisition after considering and
challenging recommendation of management
Board
Within strategy and risk appetite
Viability of financing
Business case proven
Perform due diligence
Prepare disclosure
Corporate Governance in practice:
Dealing with Business Acquisitions

10. Corporate Governance in Practice:
Giving attention to the Human Dimension
Purpose, vision, objectives, plan, values, risks, control
Organisations are
merely collection of people
supposedly working for
single purpose
The hearts and mind
should not be
forgotten

11. History of corporate governance in Malaysia:
From crisis to competitiveness
1997 2000 2007
2011
2012 2014 2016
Asian
Financial
Crisis
MCCG
2000
issued
MCCG
2007
issued
CG
Blueprint
2011 -
2020
issued
MCCG
2012
issued
MCII
2014
issued
Consultation
on MCCG
2016
issued
Asean
CG
scorecard
BNM Policy
Document on
CG of FIs

12. MCCG 2000
• Principles
• Best practices
• Principles and best practices for shareholders and external auditors
• Explanatory notes
• Fairly detailed and prescriptive given this was the first time CG was
introduced
• Enforced on listed companies through listing requirements; disclose
application of principles and disclose extent of application of best
practices and explain any departure - “comply and explain” approach

13. MCCG 2000
• Principles
• Effective board which leads and control
• Balanced board, executive and non-executive directors
• Supplied with quality and timely information
• Formal appointment process and re-election
• Remuneration must be competitive to attract the required talent to be on the board
with formal process and disclosure
• Dialogue between the board and institutional shareholders in annual general meeting
• Financial statement should present balanced and understandable assessment of
companies position and prospects
• Effective internal control system maintained
• Maintain appropriate relationship with external auditors

14. MCCG 2000
• Best practices
• Board’s stewardship responsibilities regarding strategy, overseeing
business, risk management, succession planning, investor relation
and internal control
• Constituting an effective board including balance of power, non-
executive participation, appointment process, assessment of board
effectiveness, quality of information and expert advice to the board.
• Accountability and audit - role of audit committee (majority
independent) and how they deal with external and internal auditors
• Communication with shareholders

15. MCCG 2007
• Introduced qualifying criteria for directors i.e. must consider
skills, knowledge, expertise and experience;
professionalism; integrity and in the case of independent
directors, their ability to act appropriately
• Explicitly requiring nominating committee to be established
and its role in assessing board effectiveness and
independence of independent directors
• All members of audit committee must be independent
directors
• Making internal audit function mandatory

16. MCCG 2012
• Sets out broad principles and specific recommendations on
structures and process in making good corporate governance
an integral part of business dealings and corporate culture
• Apart from recommendations to strengthen the board it also
encourages companies to have disclosure policies and to
commit to respect shareholders’ rights
• It has 8 principles and 26 recommendations to strengthen board
and committees, promote timely and balanced disclosure,
safeguards integrity of financial reporting, emphasise
importance of internal control dan risk management and
encourage shareholders’ participation in general meetings

17. MCCG 2012
• P1 - Board to establish clear role and responsibilities (establish
ethical standards and publish and review board charter)
• P2 - Strengthen composition of the board (nomination
committee must only consist of non-executive directors, majority
must be independent)
• P3 - Reinforce independence of directors (independent director
cannot serve more than 9 years, splitting the Chairmanship and
CEO, majority of the board must be independent of the
chairman is non-independent)
• P4 - Foster commitment (time and training)

18. MCCG 2012
• P5 - Uphold integrity in financial reporting
• P6 - Recognise and manage risk
• P7 - Ensure timely and high quality disclosure
• P8 - Strengthen relationship between company and
shareholders

19. MCCG 2016 - The Proposal
• Streams CG practices into 2 categories, Core and Core Plus
• Practices are actions, procedures, or processes which companies
are expected to adopt in order to support long term success of the
company, market confidence and business integrity
• Companies are required to disclose their adherence to the Core
practices on an ‘apply or explain an alternative’ basis
• Core Plus category consists of exemplary practices that companies
should aspire to achieve
• While these practices are voluntary, companies are strongly
encouraged to adopt them and disclose in the annual report how
these practices are being undertaken or implemented

20. MCCG 2016 - The Proposal
• ‘apply or explain an alternative’ - to provide clear
and meaningful explanation on how they have
adopted the Core practices and achieve the
Intended Outcome of each practice
• ‘Apply’ requires greater thought process and
consideration in implementing or undertaking the
practices, including in disclosing information on
these practices

21. MCCG 2016 - The Proposal
• If the Core practices are not adopted, a clear
explanation for the non-adoption of the practice(s)
must be made and how an alternative which is able to
fulfill the Intended Outcome has been implemented
• The explanation must be reasonably detailed and
informative so that the market understands how the
alternative meets the Intended Outcome
• An Intended Outcome which provides the intention,
rationale and objective of each practice

22. MCCG 2016 - The Proposal
• The Principles of the MCCG 2016 encapsulate the fundamentals
underpinning good governance practices that companies should
apply when implementing the Practices. There are four Principles
in the MCCG 2016:
• Supporting board leadership and effectiveness;
• Safeguarding the integrity of financial and corporate reporting;
• Managing risks to preserve and create value; and
• Strengthening relationship with shareholders

23. MCCG 2016 - The Proposal
• Examples:
Practice 5.2
There is detailed disclosure on the remuneration of individual
directors on a named basis
Intended Outcome
There is transparency on the remuneration of directors, and
shareholders are able to form an opinion as to whether the
remuneration of each director is fair, yet attractive enough to retain
the person without leading to short-termism and risky behaviour.

24. MCCG 2016 - The Proposal
• Examples:
Core Plus
Practice 5.2
The Nominating Committee discloses the relationship between ‘pay and
performance’ for both executive directors and senior management’s
remuneration packages
Intended Outcome
Shareholders are able to form an opinion on the fairness of the
remuneration packages

25. Reality check - ACGA Recent observations
• Viewed favourably:
• Inclusion of MD&A in annual reports beginning
2016
• Enforcement successes by SC, AOB and Bursa
• Malaysian Code of Institutional Investors

26. Reality check - ACGA Recent observations
• Viewed favourably:
• New Companies Act
• Board training details
• Senior independent directors

27. Reality check - ACGA Recent observations
• Viewed unfavourably:
• Period of 4 months for PLCs to produced audited
financial statements instead of 3 months
• Strategic sustainability disclosure
• Disclosure of remuneration of directors
• 1MDB

28. Reality check - ACGA Recent observations
• Viewed unfavourably:
• Companies relying on auditors to finalise financial
statements and many chairman of audit
committees are former partners of audit firms
• Board assessments provided no information to
investors

29. The Way Forward
• Regulators are looking at strengthening ethics and
culture as the mean to enhance corporate governance
• The influence of public governance or the lack of it on
corporate governance should not be under estimated
• Whether good governance is valued by our society?
• While enforcement actions would deter potential
governance failures, the tone set in boardrooms in
ensuring performance would be more sustainable