Developments in Malaysian Corporate Governance The Regulatory Perspective Nik Ramlah Mahmood

2 Agenda  Overview of Reform Agenda  The Rights and Equitable Treatment of Shareholders  The Role of Stakeholders in Corporate Governance  Disclosure and Transparency  The Responsibilities of the Board  Other Initiatives  Way Forward

3 Malaysia has a strong legal and institutional framework for corporate governance Overview of Reform Agenda Legal framework based on traditions of common law legal system Comprehensive array of statutes Supported by traditional common law remedies Established institutions like courts and regulatory agencies

4 Even prior to the crisis the basic regulatory framework was being continuously reviewed and updated Overview of Reform Agenda Move to Disclosure Based Regulation (DBR) Strengthening Accounting Standards Financial Reporting Foundation (FRF) Malaysian Accounting Standards Board (MASB) Review of Takeovers and Mergers Code Strengthening insider trading laws Requirement for independent directors & audit committee

5 A three-pronged approach was adopted after the crisis Pursuit and review of on-going programmes Swift implementation of measures to address specific weaknesses A holistic approach to address medium to longer term issues Finance Committee Report on Corporate Governance 1999 Capital Market Masterplan 2001 Overview of Reform Agenda

6 Rights And Equitable Treatment Of Shareholders Related party & substantial property transactions – enhanced disclosure & approval requirements Revamped Takeovers & Mergers Code Proposed codification of directors fiduciary duties Shareholder Activism – formation of Minority Shareholder Watchdog Group (MSWG) Existing common law & statutory protection  Directors fiduciary duties One share one vote rule Shareholder rights at AGM Related and substantial party transactions Oppression remedy Common law Derivative Action Common law and statutory remedies are continuously enhanced Proposed best practices for institutional investors Statutory derivative actions Cumulative voting – being studied

7 Role of stakeholders and other ‘enforcers’ Regulatory and other efforts Civil action - Market manipulation & Insider trading - Enhanced prospectus disclosure obligations on directors, officers and advisers - Right to compensation Enhancement of audit quality and independence Facilitation of efforts of MSWG Range of laws pertaining to various stakeholder rights & obligations, consumer rights, labour rights and environmental issues Watchdogs & Gatekeepers RegulatorsProfessionals Investors Corporates BoardsAuditors CreditorsAll market participants Stakeholders and other ‘enforcers’ must play their role…..

8 Disclosure And Transparency Substantial shareholding disclosure MASB established – Mandatory compliance to accounting standards Directors and CEOs to disclose interests in PLCs Mandatory disclosure on extent of CG Code Compliance Transparency in share ownership – 1998 Revamped Takeovers & Mergers Code – 1999 Quarterly reporting Directors certification of accounts Move towards DBR Annual Report – financial statements Directors statement on internal controls Continuous disclosure framework – listing requirements Are essential pre-requisites to effective CG…..

9 Responsibilities Of The Board Best Practices –Code on Corporate Governance 2000 Enforcement – Accountability of principal officers / controlling stakeholders Power to Bar/suspend directors - enhanced Directors certification of accounts Independent directors – 1/3 rd requirement 2001 Directors eligibility Mandatory Independent directors – 1987 Directors Fiduciary duties – common law and statutory obligations Audit committees mandatory – 1994 Power to Bar/suspend directors Best Practices –Guidelines on Internal Audit Function 2002 Directors statement on internal controls 2001 Audit Committee – composition & function 2001 Are also continuously enhanced…..

10 Responsibilities Of The Board Training and Awareness Component  Mandatory Accreditation Programme (MAP) for directors of PLCs  Continuing Accreditation Programme (CEP) for directors of PLCs  Securities Industry Development Centre  Malaysian Institute of Corporate Governance  Industry Corporate Awards Ongoing changes to the law Codification of directors duties Business judgment defence Enhancement and rationalisation of related part and substantial property transaction provisions in Companies Act 1965 Training and awareness programmes are vigorously pursued….

11 Regulatory Reform Efforts Are Supported By Other Initiatives Acceleration of corporate restructuring Appointment of professional managers Ongoing education and awareness programmes Engagement with constituents Stepping Up on Enforcement Compounding powers enhanced Powers to impose civil penalties SC’s supervisory and enforcement capabilities civil enforcement powers in relation to insider trading provisions

12 Corporate Governance Initiatives in Malaysia – a snapshot True and fair certification by Directors on financial statements Audit Committee Requirement Independent Accounting Standard Setting Board Directors and CEOs to disclose interests in PLC Quarterly Reporting Revamped Takeovers & Mergers Code Code on Corporate Governance Mandatory disclosure on CG Code compliance Establishment of MSWG Mandatory Accreditation Programme for Directors Internal Audit guidelines for PLCs

13 Way Forward - Ongoing commitment  To continue to facilitate the hybrid vigour of a multi pronged approach in efforts to enhance CG  To further build on the recommendations of Report on Corporate Governance (1999) and the Capital Market Masterplan(2001) within a holistic framework for longer-term market development  To continue to facilitate the hybrid vigour of a multi pronged approach in efforts to enhance CG  To further build on the recommendations of Report on Corporate Governance (1999) and the Capital Market Masterplan(2001) within a holistic framework for longer-term market development

14