EN­HANC­ING BOARD­ROOM DI­VER­SITY, IN­DE­PEN­DENCE

MCCG 2017 to serve as com­pass for boards to lead com­pa­nies for­ward

New Straits Times - - Business - The ar­ti­cle is con­trib­uted by 30% Club Malaysia, a col­lab­o­ra­tive, con­certed busi­ness-led ef­fort cam­paign­ing to ac­cel­er­ate progress to­wards bet­ter gen­der bal­ance at all lev­els of or­gan­i­sa­tion.

ON April 26, the Se­cu­ri­ties Com­mis­sion Malaysia (SC) un­veiled the lat­est Malaysian Code of Cor­po­rate Gov­er­nance (MCCG 2017).

As the MCCG was last re­viewed and up­dated in 2012, the MCCG 2017 in­tro­duces cer­tain im­prove­ments aimed at strength­en­ing Malaysia’s cor­po­rate cul­ture an­chored on ac­count­abil­ity and trans­parency, cre­at­ing the con­di­tions needed for re­tain­ing and height­en­ing in­vestor con­fi­dence.

Ac­cord­ing to SC chair­man Tan Sri Ran­jit Ajit Singh, the MCCG 2017 placed greater em­pha­sis on the in­ter­nal­i­sa­tion of cor­po­rate gov­er­nance cul­ture among listed and non-listed en­ti­ties, in­clud­ing gov­ern­ment-linked com­pa­nies, small and medium en­ter­prises and li­censed in­ter­me­di­aries to em­brace the code.

The first batch of com­pa­nies ex­pected to re­port their ap­pli­ca­tion of the MCCG’s best prac­tices are those with the fi­nan­cial year end­ing De­cem­ber 31.

In con­trast with the MCCG 2012, there are three broad ar­eas, where sig­nif­i­cant changes are in­tro­duced in the MCCG 2017, in­clud­ing board com­po­si­tion, gen­der di­ver­sity on boards and ten­ure of in­de­pen­dent di­rec­tors.

Board di­ver­sity

Un­der the MCCG 2012, the board should com­prise a ma­jor­ity of in­de­pen­dent di­rec­tors, where the chair­man is not an in­de­pen­dent di­rec­tor.

From this year on­wards, the en­hanced MCCG 2017 re­quires at least half of the board are in­de­pen­dent di­rec­tors. How­ever, for large com­pa­nies on the FTSE Bursa Malaysia Top 100 In­dex or those with at least RM2 bil­lion mar­ket cap­i­tal­i­sa­tion, more than 50 per cent of board mem­bers have to be in­de­pen­dent.

Gen­der di­ver­sity

The MCCG 2012 con­tained a mere rec­om­men­da­tion for com­pa­nies to estab­lish a pol­icy on gen­der di­ver­sity. The MCCG 2017 re­quires com­pa­nies to openly dis­close their poli­cies for ap­point­ing more women to the board, as well as set tar­gets and mea­sures to­wards meet­ing those tar­gets. In ad­di­tion, large com­pa­nies are ex­pected to ap­point at least 30 per cent women into their boards.

Ten­ure of in­de­pen­dent

di­rec­tors

The MCCG 2012 set a ten­ure limit of nine years for in­de­pen­dent di­rec­tors, after which share­hold­ers’ ap­proval is re­quired annually for the ten­ure to be ex­tended. Un­der the MCCG 2017, the length of the ten­ure re­mains un­changed, but share­hold­ers’ an­nual ap­proval is re­quired from nine to 12 years only.

From the 13th year on­wards, com­pa­nies are ex­pected to ap­ply the newly in­tro­duced two-tier vot­ing process, where un­der tier1 the large share­hold­ers (not less than 33 per cent of the vot­ing shares) will cast their votes, and the other share­hold­ers will cast their votes un­der tier-2. A ma­jor­ity vote at both lev­els is re­quired for an in­de­pen­dent di­rec­tor to be re-elected.

The MCCG 2017 also re­quires com­pa­nies to dis­close the re­mu­ner­a­tion break­down of ev­ery di­rec­tor, in­clud­ing fee, salary, bonus and other emol­u­ments. Re­mu­ner­a­tion of se­nior man­age­ment per­son­nel must also be dis­closed in bands of RM50,000.

As a stake­holder in­ter­ested in key de­vel­op­ments in the cor­po­rate land­scape, the Malaysian Chap­ter of the 30% Club ob­serves these changes closely, keen to eval­u­ate their im­pact on its cause.

As a non-profit move­ment seek­ing to achieve at least 30 per cent women on the boards of the Top 100 pub­lic lim­ited com­pa­nies (PLCs) by year-end and on the boards of PLCs over­all by 2020, the 30% Club is en­cour­aged by the newly in­tro­duced changes as their im­ple­men­ta­tion is ex­pected to ac­cel­er­ate the progress to­wards achiev­ing those tar­gets.

To make any kind of mean­ing­ful progress, ac­cel­er­a­tion is needed as at the cur­rent pace the tar­get set would not be reached un­til 2099.

Ac­cord­ing to the SC, 45 of the Top 100 com­pa­nies in Malaysia cur­rently do not have boards with a ma­jor­ity of in­de­pen­dent di­rec­tors.

The data fur­ther shows women make up just 16.8 per cent of their boards and 25.6 per cent of top man­age­ment. There are 972 chief ex­ec­u­tive of­fi­cers over­all but just 7.2 per cent of them are women. More­over, there are at present 21 PLCs with ex­clu­sively male board di­rec­tors.

In the light of the changes in­tro­duced by the MCCG 2017, re­quir­ing large com­pa­nies to have more than 50 per cent of board mem­bers to be in­de­pen­dent and at least 30 per cent of the board to con­sist of women di­rec­tors, the de­mand for in­de­pen­dent di­rec­tors will likely in­crease as va­can­cies be­come avail­able over time.

The re­stric­tions im­posed by the MCCG 2017 on any ex­ten­sion to the nine-year ten­ure of in­de­pen­dent di­rec­tors will also cre­ate ad­di­tional de­mand for in­de­pen­dent di­rec­tors.

These changes, aimed at im­prov­ing im­par­tial­ity in de­ci­sion­mak­ing and ef­fec­tive over­sight of man­age­ment, in­evitably cre­ate ad­di­tional de­mand for in­de­pen­dent di­rec­tors.

The hope is that with the level of aware­ness al­ready achieved, nom­i­nat­ing com­mit­tees of PLCs will be en­cour­aged to seek out com­pe­tent women can­di­dates to in­clude in their shortlist.

The chal­lenge for the 30% Club is to help facil­itate the search and match­mak­ing process.

Be­sides, Ran­jit aptly pointed out that big data and ar­ti­fi­cial in­tel­li­gence ca­pa­bil­i­ties were needed to strengthen cor­po­rate sur­veil­lance and en­force­ment.

Sim­i­larly, timely and ac­cu­rate data is needed for the 30% Club to ef­fec­tively re­spond to the ex­pected rise in de­mand for in­de­pen­dent di­rec­tors.

For in­stance, in or­der to be proac­tive the 30% Club could ap­proach those PLCs, which are known to have board va­can­cies, and of­fer them a list of po­ten­tial women can­di­dates.

The 30% Club is op­ti­mistic that the MCCG 2017 will steer cor­po­rate Malaysia to higher stan­dards of trans­parency and ac­count­abil­ity.

The MCCG 2017 will serve as com­pass for boards to lead com­pa­nies for­ward and deepen un­der­stand­ing on the im­por­tance of cor­po­rate gov­er­nance.

Boards will need to func­tion in a fast-chang­ing busi­ness land­scape with com­pe­ti­tion evolv­ing rapidly through in­no­va­tion and dig­i­tal dis­rup­tion. Hence, board di­rec­tors must pos­sess the right skills to over­come those tough chal­lenges and the 30% Club will need to find women ready to serve un­der those con­di­tions.

PIC BY SUPIAN AH­MAD

Se­cu­ri­ties Com­mis­sion chair­man Tan Sri Ran­jit Ajit Singh says big data and ar­ti­fi­cial in­tel­li­gence ca­pa­bil­i­ties are needed to strengthen cor­po­rate sur­veil­lance and en­force­ment.

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