I have written before about the highly regarded country reports by ACGA-CLSA:
The new report "CG Watch 2014" has been published, I have not yet read the full report, but this is what MSWG wrote about it in their weekly newsletter:
Malaysia is on the 4th position out of 10 in the ACGA-CLSA CG Watch 2014. The Report mentioned that Malaysia was the only country that had consistently edged up in the score from 49% in 2007 to 58% in 2014. The improvements were largely through a mix of government-driven reforms in the corporate sector such as the implementation of CG Blueprint 2011, a state-grandfathered push to require domestic institutional investors to take up CG seriously through the Malaysia Code of Institutional Investors and the creation of one of the region’s better independent Audit Oversight Board (AOB). The Report also recognised the emergence of some aspect of culture emanating through the development of the Institutional Investors Code, and elements of voluntary poll voting with improved communications by PLCs.
The Report highlighted that the Asian region as a whole often gets caught up in politics making legislative changes tough and thus would depend upon strong government support which normally is not forthcoming. Securities commissions are beginning to take enforcement seriously, but the disclosure of these efforts can be improved. The Report also highlighted the conflicts of interest in the role of stock exchanges. Shareholder rights in the different markets were said to be weak, especially relating to takeover and major or related-party transactions.
The CG Watch 2014 reported that our country began promoting corporate social responsibility (CSR) well ahead of many other Asian markets, however, the implementation stopped at the aspect of CG financial reporting.
The Report had suggested that PLCs in Malaysia should disclose more details in the AGM agendas and should provide commentary on services covered by non- audit fees.
Lastly, the Report also highlighted several sure ways to be downgraded in the next rating. One; is the continuation of voting by show of hand at AGMs/EGMs and two; if the implementation of the Malaysian Code of Institutional Investors is weak.
While I do agree that in general CG seems to have improved over the last years, there is still the lingering fear that "corporate governance [is] lacking substance".
The real test would be the next recession, "Only when the tide goes out do you discover who's been swimming naked" (a quote from Warren Buffett).
In the meantime, I am looking forward to the detailed report regarding Malaysia and Singapore.
Showing posts with label ACGA. Show all posts
Showing posts with label ACGA. Show all posts
Sunday, 5 October 2014
Monday, 3 December 2012
YTL, why the hurry?
From the website of MSWG:
"MSWG completed the attendance of a few AGMs this week. Amongst them were AGMs for YTL Group of companies comprising meetings for YTL Land, YTL Power, YTL Corp and YTL E- Solution. The observations we noted was the speed with which the meetings were carried. It seems rushed how four (4) meetings were conducted on the same day, with very little breathing space both for shareholders and directors. The average interval between the commencement of each meeting was only an hour and seemingly there was an hour constraint imposed for all the businesses to be carried out at each AGM. The tendency is for shareholders to ask very few questions and the response could possibly be a hurried one which may be unsatisfactory. To us it was undoubtedly a whirlwind affair and rather compressed meetings.
Wouldn’t it have been better if the same meetings were spread out over an interval maybe a day each between each AGMs? It would give those attending more time to digest the details provided by the company with greater depth. The Board too would benefit as it would have more time to take questions thoughtfully. AGMs are only held once a year where shareholders get to see their directors and ask the pertinent questions. We do hope that the Board of YTL would consider such suggestion."
All were held on November 27th:
On November 26th, 3.30pm the AGM of YTL Cement was held. But since this company is delisted, I haven't read any information about it, they are not making announcements to Bursa Malaysia anymore.
This is not the first time that the YTL Group seems to have some CG issues. I don't think that the delisting of YTL Cement deserves a medal for good CG.
From CLSA "CG Watch 2012", "Companies that have seen CG deterioration":
Larger-cap companies with an institutional following that have seen CG declines include YTL Power, Genting Malaysia and Genting Berhad.
For many years, YTL Power had focused on regulated industries, ie, power generation and water. It has a global presence in regulated industries stretching from the UK to Australia. However it recently ventured into telecommunications, where it has no prior industry knowledge. Competition in this market is stiff and this venture has incurred large startup losses. Our scoring marks negatively for a company that diversifies into different businesses.
The key concern on Genting Malaysia has been related-party transactions. In November 2008, it purchased a 10% stake in Walker Digital for US$69m from the family that controls the Genting group. In July 2010, Genting Malaysia paid Genting Singapore RM1.7bn for Genting UK. Generating positive Ebitda for Genting UK has been an uphill battle, especially with the difficult macro environment in the UK currently. There is also an issue about independence with a chairman who is also CEO, and holding the same two positions at the listed parent. Genting Berhad, meanwhile, has one of the highest ratios of director remuneration to net profit for companies in our Malaysian coverage universe at 4%, which is a drag on its score.
"MSWG completed the attendance of a few AGMs this week. Amongst them were AGMs for YTL Group of companies comprising meetings for YTL Land, YTL Power, YTL Corp and YTL E- Solution. The observations we noted was the speed with which the meetings were carried. It seems rushed how four (4) meetings were conducted on the same day, with very little breathing space both for shareholders and directors. The average interval between the commencement of each meeting was only an hour and seemingly there was an hour constraint imposed for all the businesses to be carried out at each AGM. The tendency is for shareholders to ask very few questions and the response could possibly be a hurried one which may be unsatisfactory. To us it was undoubtedly a whirlwind affair and rather compressed meetings.
Wouldn’t it have been better if the same meetings were spread out over an interval maybe a day each between each AGMs? It would give those attending more time to digest the details provided by the company with greater depth. The Board too would benefit as it would have more time to take questions thoughtfully. AGMs are only held once a year where shareholders get to see their directors and ask the pertinent questions. We do hope that the Board of YTL would consider such suggestion."
All were held on November 27th:
- YTL Land at 11AM
- YTL E-Solutions at 12PM
- YTL Power at 2PM
- YTL Corp at 3PM
On November 26th, 3.30pm the AGM of YTL Cement was held. But since this company is delisted, I haven't read any information about it, they are not making announcements to Bursa Malaysia anymore.
This is not the first time that the YTL Group seems to have some CG issues. I don't think that the delisting of YTL Cement deserves a medal for good CG.
From CLSA "CG Watch 2012", "Companies that have seen CG deterioration":
Larger-cap companies with an institutional following that have seen CG declines include YTL Power, Genting Malaysia and Genting Berhad.
For many years, YTL Power had focused on regulated industries, ie, power generation and water. It has a global presence in regulated industries stretching from the UK to Australia. However it recently ventured into telecommunications, where it has no prior industry knowledge. Competition in this market is stiff and this venture has incurred large startup losses. Our scoring marks negatively for a company that diversifies into different businesses.
The key concern on Genting Malaysia has been related-party transactions. In November 2008, it purchased a 10% stake in Walker Digital for US$69m from the family that controls the Genting group. In July 2010, Genting Malaysia paid Genting Singapore RM1.7bn for Genting UK. Generating positive Ebitda for Genting UK has been an uphill battle, especially with the difficult macro environment in the UK currently. There is also an issue about independence with a chairman who is also CEO, and holding the same two positions at the listed parent. Genting Berhad, meanwhile, has one of the highest ratios of director remuneration to net profit for companies in our Malaysian coverage universe at 4%, which is a drag on its score.
Sunday, 21 October 2012
Malaysia’s perennial problem: enforcement
In the CG Watch 2012 report, Malaysia scored only 7 points out of a maximum of 18 on enforcement, in other words a (very) disappointing 39%, only 1% higher than in 2010.
A sufficient score is about 60%, in the current tempo (1% improvement each two years) it would take Malaysia four decennia to reach this level. That is not in line with their ambition to be a developed nation in 2020.
The Securities Commission issued a rather positive press statement, without any criticism whatsoever. This while the CG Watch 2012 report showed:
Further not so good news regarding institutional investors, questions 11 to 13.
And MACC? Read the last question and compare the scores for Malaysia and Singapore. Hopefully nobody is surprised about that....
Singapore “yes” (1.00)
Singapore “largely” (0.75)
Singapore “somewhat (0.50)
Singapore “largely (0.75)
Singapore “yes” (1.00)
Singapore “somewhat” (0.50)
Singapore “largely” (0.75)
Singapore “somewhat” (0.50)
Singapore “somewhat” (0.50)
Singapore “largely” (0.75)
Singapore “largely” (0.75)
Singapore “somewhat (0.50)
Malaysia “no” (0.00)
Malaysia “yes” (1.00)
Singapore “yes” (1.00)
Singapore “no” (0.00)
Singapore “largely” (0.75)
Singapore “yes” (1.00)
A sufficient score is about 60%, in the current tempo (1% improvement each two years) it would take Malaysia four decennia to reach this level. That is not in line with their ambition to be a developed nation in 2020.
The Securities Commission issued a rather positive press statement, without any criticism whatsoever. This while the CG Watch 2012 report showed:
· That the SC and BM have only a “marginal” reputation for enforcement
· They “marginally” treat companies and individuals equally
· They have “no” track record regarding insider trading or market manipulation
Despite:
· Having “largely” sufficient resources (funding and manpower)
· Having “somewhat” efficient powers to investigate and sanction
The Malaysian financial regulators have been overpromising and underperforming for much too long time on the issue of enforcement. A reversal is very much needed and long overdue.
They might want to ask their tiny Southern neighbour for advice. Singapore scored 11.50 out of 18, or 64%, it scored better in every single category or at least the same as Malaysia.
Not all the news was bad for Malaysia, the good news was mostly linked to improvements in "CG Culture" and the activities by the MSWG. These subjects will be covered in a future posting.Further not so good news regarding institutional investors, questions 11 to 13.
And MACC? Read the last question and compare the scores for Malaysia and Singapore. Hopefully nobody is surprised about that....
Explanation of the scores:
Y = Yes (+ 1 point);
L = Largely (+ 0.75 point);
S = Somewhat (+ 0.5 point);
M = Marginally (+ 0.25 point);
N = No (0 point)
1. Do financial regulators in your country have a reputation for vigorously and consistently enforcing their own CG rules and regulations?
Malaysia “marginally” (0.25)Singapore “yes” (1.00)
2. Have their efforts improved tangibly in recent years?
Malaysia “marginally” (0.25)Singapore “largely” (0.75)
3. Are securities regulators seen to treat all companies and individuals equally?
Malaysia “marginally” (0.25)Singapore “somewhat (0.50)
4. Are the regulatory authorities sufficiently resourced - in terms of funding and skilled staff—to do their job properly?
Malaysia “largely” (0.75)Singapore “largely (0.75)
5. Does the main statutory regulator (ie, the securities commission) have effective powers of investigation and sanction?
Malaysia “somewhat” (0.50)Singapore “yes” (1.00)
6. Has it been investing significantly more financial and human resources in investigation and enforcement in recent years? (eg, against cases of market misconduct such as insider trading, share-price manipulation, self-dealing)
Malaysia “somewhat” (0.50)Singapore “somewhat” (0.50)
7. Has it had a successful track record prosecuting cases of insider trading and other market manipulation in recent years?
Malaysia “no” (0.00)Singapore “largely” (0.75)
8. Does the stock exchange have effective powers to sanction breaches of its listing rules?
Malaysia “somewhat” (0.50)Singapore “somewhat” (0.50)
9. Has it been investing significantly more financial and human resources in investigation and enforcement in recent years?
Malaysia “somewhat” (0.50)Singapore “somewhat” (0.50)
10. Do the regulators (ie, the securities commission and the stock exchange) disclose detailed and credible data on their enforcement track records?
Malaysia “largely” (0.75)Singapore “largely” (0.75)
11. Do institutional investors (domestic and foreign) exercise their voting rights?
Malaysia “somewhat” (0.50)Singapore “largely” (0.75)
12. Are institutional investors actively voting against resolutions with which they disagree?
Malaysia “marginally” (0.25)Singapore “somewhat (0.50)
13. Do institutional investors (domestic and foreign) often attend annual general meetings?
Malaysia “marginally” (0.25)
Singapore “marginally” (0.25)
14. Do minority shareholders (institutional or retail) often nominate independent directors? Malaysia “no” (0.00)
Singapore “marginally” (0.25)
15. Do retail shareholders see the annual general meeting as an opportunity to engage with companies and ask substantive questions?Malaysia “yes” (1.00)
Singapore “yes” (1.00)
16. Are minority shareholder activists willing to launch lawsuits against companies and/or their directors?
Malaysia “no” (0.00)Singapore “no” (0.00)
17. Are minority shareholders adequately protected during takeovers, privatisations, and voluntary delistings?
Malaysia “largely” (0.75)Singapore “largely” (0.75)
18. Is there an independent commission against corruption (or its equivalent) that is seen to be effective in tackling public- and private-sector corruption?
Malaysia “no” (0.00)Singapore “yes” (1.00)
Monday, 24 September 2012
"Asean: Virtue and Vice"
From CLSA's highly influential CG Watch 2012, the executive summary for Singapore, Malaysia, Thailand, Indonesia and the Philippines is given on pages 11 & 12:
Singapore has the highest CG score of markets we cover ex-Australia
Asean spans markets that in our rankings are the highest as well as those that come at the bottom of CLSA and ACGA’s rankings. Singapore has, on average, the highest score for governance among its corporates. As this report goes to print, there is a battle for corporate control for Asia Pacific Breweries (APB), which owns leading beer brands in the region (Tiger, Anchor, Bintang, etc). The conglomerate F&N looks set to dispose its majority stake in APB to Heineken, with which it has had a partnership arrangement that was disturbed when Thai Beverages made a bid for both a stake in FNN and control of APB. The likely outcome is that F&N disposes of its stake in APB at a premium and might disentangle its current structure that puts brewing and softdrinks together with a large property division. That a battle for corporate control in one of the largest conglomerates is leading to realisation of shareholder value with commercial logic prevailing is a rarity in the region.
But S-chips are an embarrassment
However, Singapore’s embarrassment is the so-called S-chips, mainland companies that have listed in its market. CG standards are shoddy, a number of firms have flouted the listing rules and directors have absconded to China when the exchange pursues them. The case for Chinese companies listing in Singapore has never been clear and investors in these stocks certainly need to weigh seriously the risks. This segment of the market, however, is likely to diminish in significance over time.
Sime Darby takes a hit again
Across the causeway, the largest of Malaysian conglomerates once again disappointed the market. In the Asian crisis, Sime Darby nearly blew up for its poorly managed foray into banking and stockbroking. Over the recent crisis, its balance sheet is much stronger and loses less significant but it took a hit again, this time for cost overruns at Bakun as well as the Middle East power projects, a business where it has little expertise.
Unfavourable optics in Sime’s E&O takeover
An independent director at Sime Darby has recently been charged with insider trading. More embarrassing for the governance perception for the market was Sime’s acquisition of a controlling stake in the property company, E&O. This had been preceded by the chairman of E&O buying shares in the company, before Sime Darby announced it was taking over control at a 60% premium. On the basis that the acquisition of the stake was a private transaction between Sime and the previous significant shareholders (which did not include the chairman), and that the matter had not been discussed by the board of E&O, no charges of insider trading was brought to bear. But unfortunately for the optics of the matter, the E&O chairman was the husband of the then chairperson of the Securities Commission (SC). She has since stepped down when her contract was not renewed earlier this year.
Successful enforcement required to improve perceptions
The now retired SC chairman had been brought to the commission fairly recently in 2006 from outside the agency. The current chairman has been promoted from within and has been a regulator for over 20 years (neither does he have the disadvantage of having a spouse who is a corporate figure). CG issues are nevertheless likely to continue to crop up but the efforts of the SC to take to task directors for insider trading is a positive. The country, though, needs a period without governance accidents at its larger companies and successful enforcement against transgressors to improve the perception of investors on the market.
Little impact from new government in Thailand
Thailand has a new government in place now for slightly more than a year. This has not had much of an impact on the governance outlook for corporates. Related-party transactions remain an issue with certain groups, cropping up again with CP Foods. But as companies get larger we notice improvement in transparency. The stock exchange continues to push for high standards, for instance on voting by poll, which is not mandatory but most companies have been persuaded to adopt this for extraordinary and annual general meetings, a practice that is still relatively uncommon in the region.
Regulatory issues in Indonesia
Indonesian firms have had to deal with regulatory uncertainty with regard to ownership limits on the banks and export restrictions on the mining sector. These impact their ability to maximise shareholder value, which is one of the issues in our CG scoring. Indonesian companies are also the slowest to release full-year results; given the 90-day deadline for releasing full-year numbers, none report within two months which is becoming the norm elsewhere.
Shadow play in the London market
Over in the London market, a shadow play for control of a FTSE constituent that had recently been created to take an interest in an Indonesian mining asset was illuminating. It reveals firstly there is still risk of change in shareholding structure for groups where major shareholders are highly geared. Yet, influential groups will often be able to retain effective control. Other shareholders and investors should expect to go along with the intentions of the effective controlling shareholder.
No real CG change yet in the Philippines
In the Philippines, President Aquino has been in power since 2010 and sets a positive backdrop for clean governance nationally. At the corporate level, however, there is little evidence of much change as yet. Companies continue to issue new equity when the purposes are unclear, eg, Ayala Corp, or
sometimes surprising the market with the size, eg, Banco de Oro. Inter-group transaction of assets within the First Philippine Holdings listed companies raised questions over pricing.
Singapore has the highest CG score of markets we cover ex-Australia
Asean spans markets that in our rankings are the highest as well as those that come at the bottom of CLSA and ACGA’s rankings. Singapore has, on average, the highest score for governance among its corporates. As this report goes to print, there is a battle for corporate control for Asia Pacific Breweries (APB), which owns leading beer brands in the region (Tiger, Anchor, Bintang, etc). The conglomerate F&N looks set to dispose its majority stake in APB to Heineken, with which it has had a partnership arrangement that was disturbed when Thai Beverages made a bid for both a stake in FNN and control of APB. The likely outcome is that F&N disposes of its stake in APB at a premium and might disentangle its current structure that puts brewing and softdrinks together with a large property division. That a battle for corporate control in one of the largest conglomerates is leading to realisation of shareholder value with commercial logic prevailing is a rarity in the region.
But S-chips are an embarrassment
However, Singapore’s embarrassment is the so-called S-chips, mainland companies that have listed in its market. CG standards are shoddy, a number of firms have flouted the listing rules and directors have absconded to China when the exchange pursues them. The case for Chinese companies listing in Singapore has never been clear and investors in these stocks certainly need to weigh seriously the risks. This segment of the market, however, is likely to diminish in significance over time.
Sime Darby takes a hit again
Across the causeway, the largest of Malaysian conglomerates once again disappointed the market. In the Asian crisis, Sime Darby nearly blew up for its poorly managed foray into banking and stockbroking. Over the recent crisis, its balance sheet is much stronger and loses less significant but it took a hit again, this time for cost overruns at Bakun as well as the Middle East power projects, a business where it has little expertise.
Unfavourable optics in Sime’s E&O takeover
An independent director at Sime Darby has recently been charged with insider trading. More embarrassing for the governance perception for the market was Sime’s acquisition of a controlling stake in the property company, E&O. This had been preceded by the chairman of E&O buying shares in the company, before Sime Darby announced it was taking over control at a 60% premium. On the basis that the acquisition of the stake was a private transaction between Sime and the previous significant shareholders (which did not include the chairman), and that the matter had not been discussed by the board of E&O, no charges of insider trading was brought to bear. But unfortunately for the optics of the matter, the E&O chairman was the husband of the then chairperson of the Securities Commission (SC). She has since stepped down when her contract was not renewed earlier this year.
Successful enforcement required to improve perceptions
The now retired SC chairman had been brought to the commission fairly recently in 2006 from outside the agency. The current chairman has been promoted from within and has been a regulator for over 20 years (neither does he have the disadvantage of having a spouse who is a corporate figure). CG issues are nevertheless likely to continue to crop up but the efforts of the SC to take to task directors for insider trading is a positive. The country, though, needs a period without governance accidents at its larger companies and successful enforcement against transgressors to improve the perception of investors on the market.
Little impact from new government in Thailand
Thailand has a new government in place now for slightly more than a year. This has not had much of an impact on the governance outlook for corporates. Related-party transactions remain an issue with certain groups, cropping up again with CP Foods. But as companies get larger we notice improvement in transparency. The stock exchange continues to push for high standards, for instance on voting by poll, which is not mandatory but most companies have been persuaded to adopt this for extraordinary and annual general meetings, a practice that is still relatively uncommon in the region.
Regulatory issues in Indonesia
Indonesian firms have had to deal with regulatory uncertainty with regard to ownership limits on the banks and export restrictions on the mining sector. These impact their ability to maximise shareholder value, which is one of the issues in our CG scoring. Indonesian companies are also the slowest to release full-year results; given the 90-day deadline for releasing full-year numbers, none report within two months which is becoming the norm elsewhere.
Shadow play in the London market
Over in the London market, a shadow play for control of a FTSE constituent that had recently been created to take an interest in an Indonesian mining asset was illuminating. It reveals firstly there is still risk of change in shareholding structure for groups where major shareholders are highly geared. Yet, influential groups will often be able to retain effective control. Other shareholders and investors should expect to go along with the intentions of the effective controlling shareholder.
No real CG change yet in the Philippines
In the Philippines, President Aquino has been in power since 2010 and sets a positive backdrop for clean governance nationally. At the corporate level, however, there is little evidence of much change as yet. Companies continue to issue new equity when the purposes are unclear, eg, Ayala Corp, or
sometimes surprising the market with the size, eg, Banco de Oro. Inter-group transaction of assets within the First Philippine Holdings listed companies raised questions over pricing.
Wednesday, 1 February 2012
ACGA gives feedback on CG Blueprint 2011
http://www.acga-asia.org/
"The Asian Corporate Governance Association (ACGA) is an independent, non-profit membership organisation dedicated to working with investors, companies and regulators in the implementation of effective corporate governance practices throughout Asia. ACGA was founded in 1999 from a belief that corporate governance is fundamental to the long-term development of Asian economies and capital markets."
ACGA gave its feedback on the Corporate Governance Blueprint 2011 from the Securities Commission. The full feedback (7 pages) can be found here:
http://www.acga-asia.org/public/files/ACGA%20Response%20to%20CG%20Blueprint%20(final%20draft).pdf
Some items:
II. Mandate poll voting via amendments to the Listing Requirements and CG Code
The arguments presented by the SC for mandating voting by poll on only “substantive” resolutions, such as related-party transactions, as opposed to resolutions that were “administrative or procedural in nature”3, do not address the fact that companies and shareholders may disagree on what constitutes an administrative resolution and what is a substantive one. As has been seen over the past few years in Asia and globally, issues such as director re-elections and approving audited financial accounts may seem “administrative”, but are now considered substantive by many shareholders. The argument that a show of hands empowers minorities also fails to take into account that controlling shareholders can easily ask for a vote by poll should they not “like” the results from a vote by a show of hands.
In other words, ACGA likes poll voting on all issues.
Chapter 2: Role of Institutional Investors
Recommendations
I. Formulate a new code for institutional investors
• Institutional investors to drive the formulation of a new code and publish their commitment to the new code for institutional investors.
II. Create an industry driven umbrella body for institutional investors
• Institutional investors to work together towards the establishment of an umbrella body.
ACGA: These suggestions are well-intentioned and we fully support the idea of institutional investors taking on a more proactive role in corporate governance. However, we question whether these ideas will bear fruit at this stage in Malaysia? Is the investment industry ready? As one fund manager in Malaysia pointed out, unit trust fund managers, government fund managers and other fund managers do not belong to the same institutional framework and are often lobbying against each other; hence the idea of an institutional investor-driven stewardship code might not be feasible at the moment.
It is worth noting that Malaysia has not seen a great deal of engagement or activism by local institutional investors, whose usual policy has been and, for the most part, continues to be “voting with their feet”.
Khazanah Nasional, the investment holding arm of the government, has a mandate to transform certain industries “with the objective of pursuing the nation’s long-term economic interests”. While this makes them active investors, their specific mandate is not necessarily closely aligned to other institutional investors. The Employees Provident Fund, another government agency, has also become increasingly interested in the governance of its investee companies, and in 2010 published its “Corporate Governance and Voting Guidelines”. Yet, beyond these two institutions we have seen little evidence of engaged shareholders, other than a few institutional investors, such as Aberdeen Asset Management and Corston Smith.
"It is worth noting that Malaysia has not seen a great deal of engagement or activism by local institutional investors": this must be the understatement of the year, and not only applies to institutional investors but also to retail investors. Shareholder activism in Malaysia is, as far as I can judge, almost non-existent. SC and BM should take a good deal of the blame for this.
The praise for the EPF is really too much in my opinion, except for initial funding of MSWG and publishing its voting guidelines it has been very quiet, much too quiet. This is a large institute with all the necessary facilities, manpower and money, they could have done such a better job if they had wanted to do so.
We also agree that creating an industry umbrella body for institutional investors is a good idea. Once again, however, some fundamental questions need to be asked. Who will lead it? Who will fund it? Moreover, such a body needs to be independent. It should not be set up by the government or with government funding. We believe this would defeat the purpose of such a body.
Chapter 3: The Board’s Role in Governance
We agree that the chairman and CEO should be separated. While we understand that most companies that currently have a separate chairman and CEO only follow the letter of the guideline rather than the substance, imposing an independence criteria on a company’s chairman could, we fear, only lead to more box-ticking.
In this context, it is worth emphasising that the quality and authority of an independent chairman is critical. Most Asian listed companies—and Malaysia is no exception—are either family-controlled or majority state-owned, hence it is very likely that any “independent chairman” will be loyal to the majority shareholder. We would suggest that it would be better to mandate the recommendation made in the Corporate Governance Code that a board nominates an INED to be the senior independent director to whom concerns may be conveyed. The lead independent director would be responsible for, among other things, ensuring that independent directors can perform their duties responsibly; call meetings of the independent directors as needed; serve as principal liaison between the independent directors and the chairman and senior management; and respond to shareholder and other stakeholder questions and comments.
With regard to the question of allowing a former CEO to become the chairman after a “cooling-off” period, it is extremely unlikely that a former employee would ever be completely free of their loyalty to the company in the Asian context. A “cooling-off” period, therefore, would not have a great deal of meaning in this context. One of the expectations that the SC has for the Code is the “diligent exercise of voting rights”5. We suggest that the SC starts with this first and mandate a policy whereby institutional investors would need to publish their voting policies and also how they have voted at AGMs annually. The Thai Securities and Exchange Commission put such a policy in place in 2005.
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