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The Journey of
Corporate Governance
in Malaysia, So Far
Nik Mohd Hasyudeen Yusoff
27 October 2016
Agenda
• Business and governance
• Corporate governance in practice
• The journey of corporate governance in Malaysia
• Re...
Your
Business
Your
Customers
Your
Customers
Your
Customers
Your
Suppliers
Your
Network
Partners
Your
Competitors
Your
Comp...
RegulatorsShareholders Lenders
Stakeholders
Corporate governance Business governance
Internal control
Assurance
Strategy
P...
Definition
• The process and structure used to direct and
manage the business and affairs of the company
towards business ...
Board
Corporate Governance in practice:
Setting up an effective board
Nomination and
remuneration
committee
Audit committe...
Role in financial reporting Role in financial reporting
Assess control
Engage auditors
Apply policy
Control effectiveness
...
Role in performance
assessment
Role in performance
assessment
Set performance targets
Engage experts
Cascade policy into a...
Role in acquisition of
business
Role in acquisition of
business
Assess conflicts
Prepare business case
Identify source of ...
Corporate Governance in Practice:
Giving attention to the Human Dimension
Purpose, vision, objectives, plan, values, risks...
History of corporate governance in Malaysia:
From crisis to competitiveness
1997 2000 2007
2011
2012 2014 2016
Asian
Finan...
MCCG 2000
• Principles
• Best practices
• Principles and best practices for shareholders and external auditors
• Explanato...
MCCG 2000
• Principles
• Effective board which leads and control
• Balanced board, executive and non-executive directors
•...
MCCG 2000
• Best practices
• Board’s stewardship responsibilities regarding strategy, overseeing
business, risk management...
MCCG 2007
• Introduced qualifying criteria for directors i.e. must consider
skills, knowledge, expertise and experience;
p...
MCCG 2012
• Sets out broad principles and specific recommendations on
structures and process in making good corporate gove...
MCCG 2012
• P1 - Board to establish clear role and responsibilities (establish
ethical standards and publish and review bo...
MCCG 2012
• P5 - Uphold integrity in financial reporting
• P6 - Recognise and manage risk
• P7 - Ensure timely and high qu...
MCCG 2016 - The Proposal
• Streams CG practices into 2 categories, Core and Core Plus
• Practices are actions, procedures,...
MCCG 2016 - The Proposal
• ‘apply or explain an alternative’ - to provide clear
and meaningful explanation on how they hav...
MCCG 2016 - The Proposal
• If the Core practices are not adopted, a clear
explanation for the non-adoption of the practice...
MCCG 2016 - The Proposal
• The Principles of the MCCG 2016 encapsulate the fundamentals
underpinning good governance pract...
MCCG 2016 - The Proposal
• Examples:
Practice 5.2
There is detailed disclosure on the remuneration of individual
directors...
MCCG 2016 - The Proposal
• Examples:
Core Plus
Practice 5.2
The Nominating Committee discloses the relationship between ‘p...
Reality check - ACGA Recent observations
• Viewed favourably:
• Inclusion of MD&A in annual reports beginning
2016
• Enfor...
Reality check - ACGA Recent observations
• Viewed favourably:
• New Companies Act
• Board training details
• Senior indepe...
Reality check - ACGA Recent observations
• Viewed unfavourably:
• Period of 4 months for PLCs to produced audited
financia...
Reality check - ACGA Recent observations
• Viewed unfavourably:
• Companies relying on auditors to finalise financial
stat...
The Way Forward
• Regulators are looking at strengthening ethics and
culture as the mean to enhance corporate governance
•...
The journey of Corporate Governance in Malaysia, So Far
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Captures the progress of corporate governance in Malaysia and the present issues and challenges

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The journey of Corporate Governance in Malaysia, So Far

  1. 1. The Journey of Corporate Governance in Malaysia, So Far Nik Mohd Hasyudeen Yusoff 27 October 2016
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 26. Reality check - ACGA Recent observations • Viewed favourably: • New Companies Act • Board training details • Senior independent directors
  27. 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. 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. 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
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    Jan. 16, 2020
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    Dec. 23, 2018
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    Mar. 15, 2018
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    Jan. 18, 2017

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

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