SC launches enhanced code on corporate governance

KUALA LUMPUR: The enhanced Malaysian Code on Corporate Governance launched by the Securities Commission yesterday will require listed companies to cap the number of years independent directors serve, disclose senior management’s remuneration and take concrete steps to increase gender diversity.

The first batch of companies that will be required to report on these new measures will be those whose financial year ends on Dec 31, 2017.
Besides that, the new code requires half of the boards to comprise independent directors, while large companies need to have a majority of independent directors. Large companies are those on the FTSE Bursa Malaysia Top 100 Index or those with a market capitalisation of RM2 billion and above.

While it is not a law, deviation from the practices under the new code will need to be backed up with justifications from the management.
The corporate governance code was first introduced in 2000 and was reviewed twice, in 2007 and 2012.

In addressing market concerns over the independence of independent directors, the tenure of independent directors should not exceed nine years.

“When an independent director serves for a long tenure, it will create doubt on their independence and their ability to challenge the management,” SC chief regulatory officer Foo Lee Mei said at the launch.

According to the SC, 810 independent directors have served for more than nine years, with the longest tenure being 37 years.

An independent director may still continue to remain on the board as a non-independent director after a cumulative term of nine years. However, in order to retain the person as an independent director, the board should provide justification and seek shareholders’ approval between years 10 and 12 and go through a two-tier vote after the 12th year.

Under the new code, companies need to disclose the remuneration breakdown of every director, including fee, salary, bonus, benefit in-kind and other emoluments. Senior management’s remuneration will be disclosed in bands of RM50,000.

SC chairman Tan Sri Ranjit Ajit Singh said while the framework and ecosystem remain robust, the regulator continues to detect instances of serious market misconduct by directors and less than honest and transparent disclosures by boards on their financial and non-financial information.

Hence, he said, the new code is an important milestone in Malaysia’s continued journey in promoting good corporate governance to ensure the sustainability and resilience of the capital market.

“It serves as a compass for boards to steer their companies forward and deepen understanding on the importance of corporate governance,” Ranjit said when launching the code.

Active investigation into corporate governance breaches accounted for 14% and 16% of total investigations by the SC, respectively.

On reasons why there is a differentiation between small and large companies, Foo explained that this is to avoid more “regulatory burden” being put on small companies which are in the growing cycle.
“If they have to comply with too many practices, then they may not have the time to build themselves,” she said.

To safeguard the independence and effectiveness of audit committees, the chairman of an audit committee should not at the same time hold the position of chairman of the board.

The nominating committee, meanwhile, is to be chaired by an independent director and comprise only non-executive directors.

In order to promote gender diversity in boardrooms, companies have to disclose policies on appointing women to the board. For a large company, women should make up at least 30% of its board of directors.

Among the top 100 listed companies, women directors make up only 16.8% and 25.6% of boards and top management.

Ranjit said the SC will deploy big data and artifical intelligence capabilities to strengthen its corporate surveillance and enforcement of corporate governance breaches.