"The push for corporate governance"

Still a very relevant article from The Star, April 25, 2009:

http://biz.thestar.com.my/news/story.asp?file=/2009/4/25/business/3748210&sec=business

Some snippets:

If you cannot stomach cynicism, do not bother asking fund managers and research heads (or for that matter, anybody who follows the corporate sector) their assessment of the state of corporate governance (CG) in Malaysia. They are more than likely to sneer, roll their eyes and scoff at the idea of even taking a minute to come up with a palatable response. Just about everybody has an opinion about this, and it is never in glowing terms.

“I don’t see anybody really interested in CG these days. I think it was just a fad,” says a senior executive at a listed company, who declined to be named. It would have been a relatively mild statement if not for the fact that several years ago, this person was employed by a body in the vanguard of government-sponsored efforts to raise CG standards here, and was earnest and passionate about the work done by his organisation.

The chief CG-related complaint here is that the interests of minority shareholders are often poorly shielded. This is a big worry because the majority of Malaysia’s listed companies have controlling shareholders who dominate the management and the boardroom. If CG principles are not consistently and publicly upheld, investors will always be wary of the possibility that the large shareholders will sneak through deals in their favour at the expense of the companies.

This is why related-party transactions (RPTs) are generally anathema to investors. Says Kumpulan Sentiase Cemerlang Sdn Bhd head of stock research Choong Khuat Hock: “Here, when the major shareholder is out to disadvantage the minority shareholder, there really is nothing much anybody can do about it.” This can take many forms, including asset injections and disposals based on debatable valuations, company takeovers that minorities are compelled to accept, generous remuneration and share options for directors, and ill-timed share buybacks.

JP Morgan Chase senior country officer and head of equities broking, Clement Chew, sees takeovers and privatisations as another area that calls out for sturdier protection of minority shareholders. He argues that minorities are often indirectly arm-twisted into accepting a general offer (GO) due to the fear of holding shares in a company that will eventually be delisted. “Minorities need to be accorded better protection, to ensure that they get a fair price in a privatisation,” he says.

When minority shareholders are seen to have lost out to the controlling shareholders, part of the blame goes to those who are supposed to look out for the interests of the minorities, or at least, the good of the companies – the independent directors and the providers of professional opinion such as the auditors, valuers and investment banks. Says Aberdeen Asset Management managing director Gerald Ambrose: “I don’t think non-executive independent directors are in a position to stop something that the major shareholder wants to do, because they are not that independent.”



The above is rather sharp criticism according to industry professionals:

• Asset injections (Related Party Transaction) and disposals based on debatable valuations
• Company takeovers that minorities are compelled to accept (General Offers with delisting threat)
• Auditors, Valuers, Independent Advisors and Investment Banks are supposed to look out for minorities but don't do that
• Independent directors that are not independent
• Generous remuneration and share options for directors
• Ill-timed share buybacks

But why do we not see these items back in the Corporate Governance Blueprint 2011?

These are very big and important issues.

Please don't forget to give feedback on the CG Blueprint 2011 at CGblueprint@seccom.com.my by 15 September 2011.