Developments in Malaysian Corporate Governance The Regulatory Perspective

Developments in Malaysian Corporate Governance The Regulatory Perspective Nik Ramlah Mahmood 1

Agenda ØOverview of Reform Agenda ØThe Rights and Equitable Treatment of Shareholders ØThe Role of Stakeholders in Corporate Governance ØDisclosure and Transparency ØThe Responsibilities of the Board ØOther Initiatives ØWay Forward 2

Malaysia has a strong legal and institutional framework for corporate governance 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 Overview of Reform Agenda 3

Even prior to the crisis the basic regulatory framework was being continuously reviewed and updated 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 Overview of Reform Agenda 4

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

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

Role of stakeholders and other ‘enforcers’ Stakeholders and other ‘enforcers’ must play their role…. . Watchdogs & Gatekeepers Range of laws pertaining to various stakeholder rights & obligations, consumer rights, labour rights and environmental issues Regulators Corporates Creditors Professionals Investors Boards Auditors All market participants 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 7

Disclosure And Transparency Are essential pre-requisites to effective CG…. . Directors certification of accounts - 1965 MASB established – Mandatory compliance to accounting standards- 1997 Quarterly reporting - 1999 Transparency in share ownership – 1998 Directors statement on internal controls - 2001 Annual Report – financial statements Directors and CEOs to disclose interests in PLCs - 1998 Continuous disclosure framework – listing requirements Revamped Takeovers & Mergers Code – 1999 Substantial shareholding disclosure Mandatory disclosure on extent of CG Code Compliance - 2001 Move towards DBR 8

Responsibilities Of The Board Are also continuously enhanced…. . Directors Fiduciary duties – common law and statutory obligations Directors eligibility Power to Bar/suspend directors Mandatory Independent directors – 1987 Directors certification of accounts - 1965 Audit committees mandatory – 1994 Best Practices –Code on Corporate Governance 2000 Enforcement – Accountability of principal officers / controlling stakeholders Power to Bar/suspend directors - enhanced Independent directors – 1/3 rd requirement 2001 Audit Committee – composition & function 2001 Directors statement on internal controls 2001 Best Practices –Guidelines on Internal Audit Function 2002 9

Responsibilities Of The Board Training and awareness programmes are vigorously pursued…. 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 10

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

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 on Corporate Governance Mandatory disclosure on CG Code compliance Establishment of MSWG Mandatory Accreditation Programme for Directors Internal Audit guidelines for PLCs 1965 1994 1997 1998 1999 2000 2001 2002 12

Way Forward - Ongoing commitment Ø To continue to facilitate the hybrid vigour of a multi pronged approach in efforts to enhance CG Ø 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 13

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