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Corporate Governance

In today’s world of global business, companies play an important role in society not only locally but globally. Companies have become one of the most powerful institutions besides government. In fact in some instances some government policies are tended towards favouring business development either locally or to attract investments from companies abroad. 

Companies not only provide jobs but create wealth to the nation as a whole. People depends on the healthy growth of companies for livelihood. It is therefore no doubt that companies today must adopt sound corporate governance practices.

Corporate governance simply about how a company should be managed. Corporate governance may be viewed as a set of mechanisms to ensure that outside investors get a fair return on their investment. History of Corporate Governance in Malaysia is not new. The Companies Act 1965 has some measures in place although not as robust as it is today.

Prior to the Asian crisis in 1997, Malaysia had already adopted some sort of Corporate Governance such as the Disclosure Based Regime introduced in 1995 by Securities Commission and the Code of Ethics developed by the Registry of Companies in 1996.

The 1997 Asian economic crisis began a day after Hong Kong was returned to China which saw Thai Bath plunged and rapidly swept through Malaysia. Foreign direct investment in Malaysia dropped from USD5.1 billion in 1997 to USD3.7 billion in 1998.

Weak corporate governance has often been cited as one of the causes of the Asian crisis. Following the Asian crisis, foreign investors have drawn up a set of global governance principles, 

to ensure that the funds it commits to Asia are not invested in companies that lack corporate governance. As a result of the 1997 Asian economic crisis, Malaysia saw the need to improve corporate governance in companies to regain investors’ confidence and took a robust reform of corporate governance. Three main categories were identified for the reform i.e. code of best practices for corporate governance; to review the legal infrastructure and enforcement; and training and education programme for directors. As a result, some measures were implemented such as mandatory appointment of independent directors especially in Public owned companies; amendment to the Companies Act 1965 which emphasized on directors duties and protection of minority shareholders; and mandatory induction programme for directors and continuing education programme for directors. It is worth to note that all these requirements are mandatory for public listed companies. However, private owned companies are encourage to adopt these measures.

A Corporate Governance Watch-Corporate Governance in Asia published in April 2003, Malaysia was rated as best in rules and regulations compared to Singapore and Hong Kong. However, Malaysia was weak in enforcement scoring only 3.5 compared to Singapore (7.5) and Hong Kong (6.5). It goes to show that Malaysia will be more attractive for investors provided we improve on enforcement of present rules and regulations.

Note : We at KIQ have on numerous cases provided advice on corporate governance and doing business in Malaysia.