Kuala Lumpur, 17 December 2018 – The Institute of Corporate Directors Malaysia today successfully concluded their second Power Talk, titled, “Would a business judgment rule help Directors sleep better at night?” by Professor Low Chee Keong, Associate Professor in Corporate Law, CUHK Business School, Hong Kong. This session aimed to discuss whether directors of companies should be protected over a business judgment that has gone wrong, and how will they avail themselves of such protection.
The Power Talk panel speakers included Professor Low Chee Keong, Associate Professor in Corporate Law, CUHK Business School, Hong Kong; corporate veteran Datuk Yvonne Chia, former CEO and director of several listed companies; and Philip Koh, Senior Partner at Mah-Kamariyah & Philip Koh. The panel session was moderated by established TV journalist, editor and anchor, Kamarul Bahrain Haron.
Professor Low Chee Keong, Associate Professor in Corporate Law, CUHK Business School, Hong Kong said, “As the complexity of business increases, businesses are not devoid of risks. The business judgement rule is meant to balance up the scale. As company directors are exposed to more duties and responsibilities, the rule is meant to protect and absolve the liabilities when the directors have fulfilled certain requirements such as taking an active position in the decision-making process, having no conflict of interests, and directing their minds to the issue. This will also safeguard directorship and retain talents.”
The Business Judgement Rule confers the protection to directors who take reasonable amounts of risk consistent with the standard of care expected of them. One key point raised was that in addition to the duties, Boards need to go beyond processes, to understand the substance of the matter and implications to the Company’s risk capacity and longer-term sustainability. This requires the members of the Board to be diversified in experience, skills and knowledge.
Datuk Yvonne Chia, former CEO and director of several listed companies, “The utmost importance is for the Board to appoint an appropriate Chief Executive Officer (CEO) who respects compliance, checks and balances, understands risk and capacity, has accountability in his/her representation, represents no conflict of interest in addition to being business competent, technically sound and entrepreneurial. Together, the CEO engages with the Board, with an appropriate strategy to optimise the company’s direction.”
Phillip Koh, Senior Partner at Mah-Kamariyah & Philip Koh said, “Many a time, companies witness the hijacking of the fundamentals of economics by irrational decisions, resulting in failing companies and projects. Sometimes the decision is a good one, but the outcome is due to poor execution by Management. Therein lies the dichotomy of a Board’s role as oversight in good faith and Management’s role in execution. With this in mind, directors should willingly assume more calculated risks which will in turn lead to greater innovation, dynamism and constant change amongst businesses that are vital ingredients for economies to prosper.”
“We should look at two (2) approaches to the business judgement rule, which are to establish if the directors have established their duty of care, as well as managing their information / knowledge on the issue. Taking into the consideration of Malaysia’s current turmoil, we should institute a proper process whereby the people with higher ethical or moral standards are responsible for making the decisions, with proper oversight of the functions that they serve. In line with the government’s decision to maintain transparency in its administration, there is still a need for more competent and ethical people to lead and affect the nation,” Professor Low added.
The session concluded with an emphasis on accountability, good governance, as well as diversity in talent and experience. As companies refresh Boards with new, young, technology-savvy and entrepreneurial members, there is a need to balance this approach with the perspective of those members who have substantial real-life experience, have worked through difficult times, have a strong feel of the cycle, and understand what sustainable performance means. Maintaining a finely tuned equilibrium will allow for prudent, vigilant yet entrepreneurial informed decisions, allowing a good balance of accountability and risk-taking.
About the Institute of Corporate Directors Malaysia (ICDM):
ICDM is a newly established one-stop professional institution for Directors by Directors to enhance board effectiveness. It is recognised and supported by the Securities Commission Malaysia, Bank Negara Malaysia, Bursa Malaysia and Capital Market Development Fund. For more information on ICDM, please visit our website at https://icdm.com.my/
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|Dau Ming Seling
|Lok Ru Jun