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Since the financial crisis in 1997, corporate governance became a key policy issue in Malaysia as well as other Southeast Asian countries affected by the crisis.
Many analysts believed that what led to the financial crisis in Malaysia and in most Southeast Asian counties was due to distorted governance structures. The standards of corporate governance were poor in these countries characterised by conduct such as petty bribery, favouritism, corruptions and economic tribalism. Business environments are not governed by sound legal system but rather to have more personal connections and relationship in disregard of investors protection. Business is believed to flourish if one ‘knows who’ rather than ‘know how’.
Following the recommendations made by a High Level Finance Committee in 1999, a Code on Corporate Governance was introduced in 2000. It was then reviewed twice in 2007 and 2012. The new Malaysia Code on Corporate Governance (MCCG) (“the Code”) came into effect on 26 April 2017. The Code has 36 practices to primarily support three (3) principles: board leadership and effectiveness; effective audit, risk management, and internal controls; and corporate reporting and relationship with stakeholders.
In essence, it is meant to set best practices in corporate culture on accountability and transparency. The Code primarily sets guidelines for boards to move forward to ensure the capital market is resilience. Yes, primary target is to protect the capital market. Although it places greater emphasis on internalisation of corporate governance culture among listed companies, it also encourages non-listed entities such as state-owned enterprises, small and medium enterprises (SMEs) and any licensed enterprises.
However, recommendations and proposals may seem fantastic but at the end of the day the reforms must be properly implemented and there must be an on-going enforcement. Implementing the Code is a long-term process and needs support to sustain it.
How do the Code fares? Have we achieved what the Code intended for? The Code puts so much emphasise on corporate governance ie private sector. However, in recent years we have witnessed lack of accountability in the public sector which has large stake in state owned enterprises.
Putting politics aside, the 1MDB case is a classic example of the Code’s failure. The 1MDB case is not a stand alone case but in fact has spiralled effect on to many other big government linked corporations into its ugly fiasco. The question now is, do we need to revamp the Code or are there alternatives? I guess, it all boils down to bold enforcement of laws to mete the perpetrators to achieve what the Code has intended it to be.
Paul Krugman (1998) in “What Happened to Asia” and Corsetti et al (1998) in “What Caused the Asian Currency and Financial Crisis” argued that the crisis was due largely to moral hazard.
Will we ever learn? Our hopes are high in the new administration of not only fault finding of its predecessors but genuine clean administration be in public or private sectors. It is really a question of morality which lies in the individual that runs either corporate or public seats.
Note : In KIQ, we have placed emphasis on transparency and accountability in our work culture for a sustainable and long-term client relationships.