Corporate governance practices in Malaysia

1. Corporate governance practices in Malaysia Group members: • Eswaran A/L Karuppiah 116387 • Norazreen Karim 118733 • Nur Fadillah Ismail 118102 • Yusmalaily Idorus 119029 • Enis Shakinar Samsudin 117131 • Nur Azarina Abd. Samat 118445

2. Introduction CORPORATE GOVERNANCE • processes by which companies are directed and controlled • a field in economics • Japan called corporate governance is “keiretsu” SIGNIFICANCE OF CODE • set out principles and best practices on structures and process

3. Corporate Governance Practices by Malaysian companies (Before Crisis 1997) • Piecemeal Basis • A significant change in the Malaysian capital market . • first phase involved the gradual introduction of greater transparency and disclosure standards. • second phase, the SC’s role in selected areas was reduced. • final phase of the programmed saw the SC evaluating corporate proposals wholly from the perspective of the quality of information disclosed in public documents.

4. Ownership concentration • Key determinant of CG • High degree of ownership concentration • Many firms in East Asia are actually dominated by specific families • Conflict of interest between majority shareholders and minority shareholders • Subject of corporate governance is to reconcile the interests

5. Malaysia during the financial crisis 1997/1998 • the financial crisis was triggered in Thailand - when foreign investors lost their confidence and started to withdraw capital due to currency devaluation • the problems transmitted to other neighboring countries which the most affected countries included Indonesia, Malaysia, South Korea, and the Philippines. • In Malaysian …… - higher level of interest rate and credit contraction - the Kuala Lumpur Composite Index was declined by 72% - the real estate market was declined sharply

6. Different view on the cause of crisis • direct reason of the financial crisis was attributed to a downturn of the economy, the collapse of the property and stock market • fundamental reason were state-directed loan policies, lack of competition and lack of prudential regulation • In the early 1990s, the significant impact of too much exposure of the banking institutions on debt to accommodate the economic boom at that time • The weaknesses in domestic financial system including the poor governance and risk management, and that poor risk management actually were reflected by weak corporate governance.

7. Aspect law to reform undertaken corporate governance • duties, obligation, rights and liabilities of directors, company officers and controlling shareholders. • Adequacy of disclosures and conflicts of interests. • Enhancing the quality of general meetings. • Efficiency in the provision of shareholders remedies. • Enforcement of good corporate governance

8. Corporate governance reform agenda in Malaysia 3 main sources; • Malaysian Code on Corporate Governance • Capital Market Master Plan (CMP) • Financial Sector Master Plan (FSMP)

9. Malaysian Code on Corporate Governance • Establishment of Finance Committee on Corporate Governance in 1998. • Principles focus four areas; 1) board of director 2) director remuneration 3) shareholders 4) accountability and audit - The companies in Malaysia should apply the broad principles of good corporate governance sets out by the code flexibly and with common sense to the varying circumstances of individual companies.

10. Capital Market Master Plan (CMP) • Complementing the reforms is the introduction of Capital Market Master Plan by the Securities Commission to chart the direction of the Malaysian capital market for the next ten years. • announced by the Second Finance Minister and Chairman of Securities Commission in August 6, 1999 and subsequently approved by the Minister of Finance in December 2000 before it’s launching in February 2001. • to achieve the objective of promoting a more conducive environment for investors in the Malaysian capital market. • One of the recommendations by the CMP is a mandatory disclosure on the state of compliance with the Malaysian Code on Corporate Governance.

11. Financial Sector Master Plan (FSMP) • Financial Sector Master Plan (FSMP) was launched in March 2001 by the Bank Negara Malaysia to chart the future direction of the financial sector over the next ten years. • objective of developing a more resilient, competitive and dynamic financial systems that contributes to the economic growth and technology driven. • specific recommendations to the banking sector indicated the requirement of having board committees to improve corporate governance, the implementation of a transparent and clearly structured.

12. Institutional Development • The establishment includes the Malaysian Institute of Corporate Governance (MICG) and the Minority Shareholders Watchdog Group (MSWG). Malaysian Institute of Corporate Governance (MICG) - MICG was established in March 1998 by the High Level Finance Committee on Corporate Governance. - The principal objectives as follows: 1) To be a leading organization for enhancement of corporate governance development. 2) To be a recognized organization for corporate governance issues through roundtable forums and dialogues, public seminars and conferences, and lecture series for corporations, institutional investors, business and professional bodies, educational institutions.

13. principal objectives of MICG (cont’) 3) To be an authoritative facilitator and the organization for advisory, technical and support services on implementation of corporate governance best practices. 4) To work closely with various stakeholders. 5) To complement the regulators: Security Commission, Company Commission Malaysia and Bursa Malaysia with regards to Corporate Governance matters. 6) To act as an independent body to conduct Corporate Governance Ratings and ensuring the ratings credibility, especially for Public Listed entities.

14. principal objectives of MICG (cont’) 7) To establish linkages and networking with the leading corporate governance references and research organizations. 8) To be able to be independent, fair and truthful in providing input or information to enhance the performance of PLCs companies to intended investors, from within and outside Malaysia. 9) To publicize the country’s effort and commitments in emphasizing corporate governance.

15. Measure to protect Minority Shareholders Interest • Minority Shareholders Interest are facing problems caused by : • -Most of the Asian companies families have control over the majority of corporations. • -The separation of ownership and control were not clear enough.

16. Overcome the problem • To overcome this problem Companies Commission of Malaysia (CCM) and Bursa Malaysia Berhad (BMB) took some actions like timely disclosure and material information. • FCCG was established in 1998 to overcome all problem by strengthening the law on related party transactions.

17. Minority Shareholders Watchdog Group (MSWG). • Commissioned by the Ministry of Finance in February 1999 and proposed in the Report on Corporate Governance. • Incorporated in august 2000 as a public company limited by guarantee. • Established in year 2001. • Revamped Listing Rules of the Kuala Lumpur Stock Exchange. • Promote better and more effective corporate governance practices which could set a benchmark for others in the region.

18. Minority Shareholders Watchdog Group (MSWG) cont’.. • Vision to be the premier service entity in enhancing shareholder activism and protecting minority interest. • Mission to lead in the development of knowledgeable as well as vibrant minority shareholders and delivering service effectively, efficiently, economically and contributing to the overall development of the capital market. • Goal to achieve credibility and sustainability.

19. Minority Shareholders Watchdog Group (MSWG) cont’.. Objectives of MSWG • resource centre for minority interest and corporate governance matter in Malaysia. • Remind investor of the right and responsibility. • Communicate to top management to monitor company policies and practices. • Protect MI from being pressure by management of listed company.

20. CONCLUSION CORPORATE GOVERNANCE • holding the balance between economic and social goals • how directors and management develop a model of governance And lastly, we advice Mr. Danish Crawford to invest in Malaysia because of; • economic become stable after the crisis • good political environment • growth of technology and • government always alert and take action

21. Q & A session Thank you