ON April 26, the Securities Commission Malaysia (SC) unveiled the latest Malaysian Code of Corporate Governance (MCCG 2017).
As the MCCG was last reviewed and updated in 2012, the MCCG 2017 introduces certain improvements aimed at strengthening Malaysia’s corporate culture anchored on accountability and transparency, creating the conditions needed for retaining and heightening investor confidence.
According to SC chairman Tan Sri Ranjit Ajit Singh, the MCCG 2017 placed greater emphasis on the internalisation of corporate governance culture among listed and non-listed entities, including government-linked companies, small and medium enterprises and licensed intermediaries to embrace the code.
The first batch of companies expected to report their application of the MCCG’s best practices are those with the financial year ending December 31.
In contrast with the MCCG 2012, there are three broad areas, where significant changes are introduced in the MCCG 2017,including board composition, gender diversity on boards and tenure of independent directors.
BOARD DIVERSITY
Under the MCCG 2012, the board should comprise a majority of independent directors, where the chairman is not an independent director.
From this year onwards, the enhanced MCCG 2017 requires at least half of the board are independent directors. However, for large companies on the FTSE Bursa Malaysia Top 100 Index or those with at least RM2 billion market capitalisation, more than 50 per cent of board members have to be independent.
GENDER DIVERSITY
The MCCG 2012 contained a mere recommendation for companies to establish a policy on gender diversity. The MCCG 2017 requires companies to openly disclose their policies for appointing more women to the board, as well as set targets and measures towards meeting those targets. In addition, large companies are expected to appoint at least 30 per cent women into their boards.
TENURE OF INDEPENDENT DIRECTORS
The MCCG 2012 set a tenure limit of nine years for independent directors, after which shareholders’ approval is required annually for the tenure to be extended. Under the MCCG 2017, the length of the tenure remains unchanged, but shareholders’ annual approval is required from nine to 12 years only.
From the 13th year onwards, companies are expected to apply the newly introduced two-tier voting process, where under tier-1 the large shareholders (not less than 33 per cent of the voting shares) will cast their votes, and the other shareholders will cast their votes under tier-2. A majority vote at both levels is required for an independent director to be re-elected.
The MCCG 2017 also requires companies to disclose the remuneration breakdown of every director, including fee, salary, bonus and other emoluments. Remuneration of senior management personnel must also be disclosed in bands of RM50,000.
As a stakeholder interested in key developments in the corporate landscape, the Malaysian Chapter of the 30% Club observes these changes closely, keen to evaluate their impact on its cause.
As a non-profit movement seeking to achieve at least 30 per cent women on the boards of the Top 100 public limited companies (PLCs) by year-end and on the boards of PLCs overall by 2020, the 30% Club is encouraged by the newly introduced changes as their implementation is expected to accelerate the progress towards achieving those targets.
To make any kind of meaningful progress, acceleration is needed as at the current pace the target set would not be reached until 2099.
According to the SC, 45 of the Top 100 companies in Malaysia currently do not have boards with a majority of independent directors.
The data further shows women make up just 16.8 per cent of their boards and 25.6 per cent of top management. There are 972 chief executive officers overall but just 7.2 per cent of them are women. Moreover, there are at present 21 PLCs with exclusively male board directors.
In the light of the changes introduced by the MCCG 2017, requiring large companies to have more than 50 per cent of board members to be independent and at least 30 per cent of the board to consist of women directors, the demand for independent directors will likely increase as vacancies become available over time.
The restrictions imposed by the MCCG 2017 on any extension to the nine-year tenure of independent directors will also create additional demand for independent directors.
These changes, aimed at improving impartiality in decision-making and effective oversight of management, inevitably create additional demand for independent directors.
The hope is that with the level of awareness already achieved, nominating committees of PLCs will be encouraged to seek out competent women candidates to include in their shortlist.
The challenge for the 30% Club is to help facilitate the search and matchmaking process.
Besides, Ranjit aptly pointed out that big data and artificial intelligence capabilities were needed to strengthen corporate surveillance and enforcement.
Similarly, timely and accurate data is needed for the 30% Club to effectively respond to the expected rise in demand for independent directors.
For instance, in order to be proactive the 30% Club could approach those PLCs, which are known to have board vacancies, and offer them a list of potential women candidates.
The 30% Club is optimistic that the MCCG 2017 will steer corporate Malaysia to higher standards of transparency and accountability.
The MCCG 2017 will serve as compass for boards to lead companies forward and deepen understanding on the importance of corporate governance.
Boards will need to function in a fast-changing business landscape with competition evolving rapidly through innovation and digital disruption. Hence, board directors must possess the right skills to overcome those tough challenges and the 30% Club will need to find women ready to serve under those conditions.
The article is contributed by 30% Club Malaysia, a collaborative, concerted business-led effort campaigning to accelerate progress towards better gender balance at all levels of organisation.