Thursday, 20 September 2012

CG in Malaysia: enforcement and culture are still the main problem areas

CLSA has published its highly influential corporate governance survey 2012 that examined 11 markets and more than 800 listed companies across Asia.

A posting about the previous 2010 survey can be found here.

I could not yet locate the report (which often has a lot of interesting detail), but the main findings can be found in the below table from this source:

It should be noted that the scores are relative, and that Singapore and Hong Kong (globally considered to be Grade B) score tops in Asia, but that better CG is to be found in certain Western countries (Grade A), although nowhere it will be really ideal. Thailand, Japan, Malaysia, Taiwan, India and Korea are considered to be in Grade C.

Total score for Malaysia improved, from 52 to 55.

CG Rules & Practices improved from 49 to 52.

Enforcement improved from 38 to 39.

Political & Regulatory improved from 60 to 63.

Accounting standards remained the same, on 80.

CG Culture improved from 32 to 36.

Malaysia has done a lot of work on CG, organising seminars, publishing booklets and its CG blueprint, hence the improvement in the CG Culture.

However, if not accompanied by a clear increase in enforcement (which is still so much lacking), the effects will only be limited, in my opinion.

My main grouses:
  • much more enforcement is needed on rampant insider trading and market manipulation
  • handling of complaints by minority investors should be hugely improved
  • the standard of independent reports should be higher, independent advisors who write biased reports should be adequately punished
  • minority investors should be better protected in delisting exercises and related party transactions
  • companies that are delisted should not be allowed to be relisted again, at least not within a certain time frame (say 5 or 10 years); if they relist, they should be transparent about the reasons for the delisting, the change in valuation, etc.
  • companies that post very disappointing results immediately after they are listed should be investigated, together with their bankers, advisors etc;

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