PETALING JAYA: Personal network referrals remain the most common director sourcing method (74%), following by nominations by major shareholders or parent companies (14%), and only 8% of companies used independent, third-party search institutions, which is the best practice recommended in the Malaysian Code on Corporate Governance (MCCG), according to the Institute of Corporate Directors Malaysia (ICDM).
The findings came after ICDM’s study entitled Malaysian Board Practices Review 2020 was conducted in collaboration with Russell Reynolds Associates (RRA) and Bursa Malaysia Bhd, which explored feedback and insights from more than100 local listed companies.
Other key observations showed only 25% of companies had independent external board evaluations in the last 10 years.
“The majority of programmes undertaken (91%) were based on individual director requests. There is lack of adequate structure, planning or pathway to ensure holistic, consistent and long-term development of directors.
“The gaps in board skills and knowledge call for greater and more effective adoption of skills such as digital, social media, technology and innovation; environmental, social and governance; human resource, culture and succession; communications and public relations; marketing and sales; branding and reputation; business, e-commerce, treasury and actuarial sciences,” it said.
ICDM president and CEO Michele Kythe Lim said a company’s board architecture and composition are critical to ensure boards are able to effectively and successfully direct or guide a company through increasingly volatile, uncertain, complex and ambiguous environments.
“Companies need to adapt the current culture and approach to their board composition, first by expanding their director sourcing methods, next through vigorous internal and external evaluations of the existing board, and thirdly, by driving the ongoing development and competency levels, balancing technical-based with performance- and behavioural-based trainings to build sustainable and effective boards,” she told reporters today at the virtual media briefing on the Malaysian Board Practices Review 2020.
RRA managing director Stephen Langton said the study highlighted an important observation that companies are generally compliant with MCCG and listing requirements for board composition. However, it also highlighted that 19% of independent directors have been on their respective boards for over nine years.
“This brings to question the independence of the board, a significant factor in allowing for more considered decision-making and protection of shareholders’ interest. It is also vital for companies to conduct periodic board evaluations by professional, experienced and independent parties, where the objective insights gained will facilitate better board-management relationships, director nomination and appointment, as well as assist in determining board remuneration,” he said.
Bursa Malaysia CEO Datuk Muhamad Umar Swift said boards need to continually evolve and improve to properly discharge their role as effective stewards.
“The regulatory framework that we have put in place is intended to support the good governance of our public listed companies (PLCs). It aims to inculcate the right culture and approach, from the rigour of governance practices put in place, to the maturity of the market and PLCs in recognising the need for competence, diversity and independence from their board leadership as they do for their management team.
“The review offers valuable insights and a clear call to action that companies need to rethink their current approaches to their board selection and evaluation practices and ongoing development to remain competitive and sustainable,” he said.
Meanwhile, on family businesses that still do not have independents on their boards, Lim said as family businesses move up the ladder to listing, they have to start adopting better governance.
“Better governance leads to better performance which leads to cheaper funding; it leads to share price not being hammered by shareholders.”
RRA board and CEO advisory consultant Alvin Chiang said having an independent board gives ideas and perspectives to the family business to evolve. “When a company starts to mature and has additional shareholders, it needs to have people who can represent multiple perspective and independent point of views.”
The review explored feedback and insights from over 100 local PLCs, covering 799 board members, across large (39%), mid (9%) and small (52%) market capitalisations and industries. These included industrial products and services, consumer products & services, property, technology, construction, plantation, telecommunications and media, utilities, healthcare, energy, financial services as well as transport and logistics.
Primarily, the review examined common practices and key appointment and reappointment considerations of independent directors, board evaluation, as well as board training and development.
