It is encouraging to see that listed companies on Bursa Malaysia have adopted a positive stance on maintaining a high level of governance as disclosed in the recent Securities Commission (SC) Corporate Governance Monitor (CGM) 2024.

While regulators in Malaysia continue to prioritise improving governance standards, it is important to ensure that corporates are not overwhelmed with continuous changes when previous adjustments have yet to achieve certain milestones.

Recently, Bursa Malaysia introduced an enhancement in remuneration disclosure in annual reports for chief executives (CEO) on a named basis, which is expected to see greater compliance among listed companies.

Other areas of improvement that regulators could introduce are summarised as follows:

Time Commitment

Increasingly, we are seeing cases of executive directors, CEOs, or managing directors being appointed as independent non-executive directors (INEDs) of other listed companies.

While this is not an offence or a violation of any general guidelines on governance, there are issues related to time commitment, even if the director in question may not even have any conflict of interest or potential conflict of interest. However, the current board must take steps to ensure that the current executive position held by the said director is not compromised. He/she must take a leave of absence to serve the other board(s) that he/she is a member of as an INED.

This is to ensure the time dedicated to activities related to his/her personal capacity is not misused, while at the same time, drawing a salary from the current executive role.

Time commitment also is crucial for the appointment of a nominee director. In most instances, a nominee director holds an executive position in a corporation or institution that is a major shareholder of a listed company.

One way to enhance the participation of a nominee director is to appoint an outside individual for the position of a nominee director to ensure the representative of the major shareholder is able to contribute effectively without time constraints.

Mandating Training Hours

A director who is active in participating and learning from curated programmes that enhance their skills is more likely to be able to contribute well at board meetings.

Today, we do see board members who are actively engaged in learning and improving their skill sets in new areas, especially those related to sustainability, climate change, cybersecurity, artificial intelligence, as well as traditional skill sets related to finance, legal, valuation and those related to auditing, risk management, compliance and accounting.

It is disheartening to note there are cases whereby directors do not attend any form of training to broaden their knowledge, other than those required by Bursa Malaysia under the Mandatory Accreditation Programme I and II.

It would be good for regulators to impose mandatory training hours of at least 20 hours a year for every director of a listed company, which would also be a benchmark for the re-election of directors at a general meeting.

Engaging Stakeholders

Other than the general meetings and other investor presentations carried out by a listed company, greater efforts are needed to engage other stakeholders and this includes employees, local authorities, local community as well as customers and suppliers.

These efforts should include the full board members and be reported in the annual report.

As a step-up measure, a listed company should also promote greater representation by having an employee representative at the board level.

However, an employee serving the board should have no conflict of interest that impact their decision-making and must also be familiar with the duties of a board member and contribute inputs for board deliberations.

Sustainability Committee

The environment, social and governance (ESG), and sustainability-related issues remain a key theme for all companies. There has been reasonable adoption of the best practices under the Malaysian Code of Corporate Governance, with some 96% of companies adopting the first three practices in 2023 based on the CGM 2024 report by the SC.

However, with the introduction of the National Sustainability Reporting Framework, which requires disclosure of sustainability-related information by companies, there is now a greater need for corporates to address key challenges, risks and opportunities, and integrate sustainability performance into the board and senior management’s key performance indicators.

All boards should also initiate social impact incentives that will show the right tone from the top, while the setting up of a sustainability committee at the board level will reinforce the board’s agenda on ESG and sustainability issues in greater breadth and depth. Sustainability is matter of financial resilience and should not be treated as a mere box-ticking exercise.

Improving ROEs

To continuously deliver results that show the growth of the company, the board must take specific steps to ensure the listed entity has solid business plans to deliver what is expected.

Key targets extend beyond mere profitability of the company, but also meeting other important financial milestones like return on equity and a dividend payout policy that is consistent.

The board should also clearly outline the sources of growth that will ensure the company’s business plans are robust, achievable and well-thought-out. Shareholder return expectations often are under-discussed at AGMs, but we expect this to change in 2025.

In conclusion, while the regulators have done a great job in ensuring greater corporate governance among listed companies, there is always room for improvement, both in the form of adopting the best practices as recommended by the SC, as well as growing to the next level with new and added governance tools. After all, strong corporate governance is essential in ensuring a transparent, accountable, and responsible and robust capital market in Malaysia.

The article was first published by The Star.

Photo by Maksym Ostrozhynskyy on Unsplash.