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In 2001, revised listing requirements of Bursa Malaysia offers greater obligation in order to public listed companies to increase Malaysia's corporate governance administrations. (KLSE, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia in April 2004.) The modified Listing Requirements of 2001 draw the requirements for financial reporting disclosure on corporate governance matters and conditioning listing obligations. Malaysian Code on Corporate Governance suggests that the board of directors select compensation and nomination committee.
Organized of other committees such as corporate governance committee and risk management committee are advised too, but these committees are run less frequently by listed firms. The Malaysian Code on Corporate Governance advises the responsibilities separation between board chair and the CEO, although Bursa Malaysia Listing Requirements (2001) does not require the isolation of these situations. Law such as the board of directors must keep a sound structure of inside organize was stated by Malaysian Code on Corporate Governance. Established this principle leads to the issuance by exchange of A Guide on Statement of Internal Control in May 2001. This guide line defines the most important key areas that directors must notice before they issue A statement of Internal Control in their annual reports. Firm that are listed is needed to concentrate on Principle and Best Practices in the Malaysian Code on Corporate Governance in their annual reports. Furthermore, directors who are hired as board of directors of a public listed company are necessitated to ac base on Listing Requirements to attend a director's training program which recognized as the compulsory certification program. Topics of this program cover Companies Act 1965, the listing requirements, internal control, risk management and relevant securities laws. Code on Corporate Governance in Malaysia (2001) provides rules and regulations to restore confidence of investors and to develop standards of corporate accountability.
All listed companies reveal their extensive shareholders together with their 30 largest shareholders in their annual reports. The Bumiputera shareholding percentage is based on 30 largest shareholders. Hence, a Bumiputera-controlled company is a company in which 50 percent or more of 30 largest shareholdings is held by government and semi-government organizations, Bumiputera individuals, Bumiputera-owned firms, and Bumiputera trust agencies. The same classification process is used to identify non-Bumiputera shareholdings.
Bumiputera in Malaya Language refers to "sons of the soil". It contains Malays, and other native people as separate from Chinese, Indian, and other non-native residents.
Malaysia has done different reforms in corporate rights and governance regulations. As some examples of these reforms, Capital Market Master Plan by securities commissions in 2001, Financial Sector Master Plan (FSMP) which offered by ministry of Finance in 2001, and recommendations by Finance Committee on Good Governance (FCGG) that are the response to 1997 disasters.
In March 2000, Finance Committee on Corporate Governance, a government-hired team comprising public officials and private participants, offers final outline of Corporate Governance Code of Malaysia. Code was improved by a working group of representatives from the private section, the securities commission and the Kuala Lumpur Stock Exchange, among others.
An Act to revoke the Public Service Tribunal Act 1997, to break up the public service tribunal recognized under the Act and to make available for other subjects linked therewith.(1 January 2000)
In this Act is given some disclosures about transfer of powers, rights a etc:
All powers, rights, opportunities, duties, compulsions and liabilities which immediately before the appointed date were those of the Tribunal shall, as from that date, devolve on the Government.
The Malaysian Code on Corporate Governance is tried to provide guidelines for companies to monitor good corporate governance in their business practices. It was published on Malaysian Law Journal Sdn Bhd on behalf of the Malaysian Institute of Corporate Governance.
The Code will define the principles of corporate governance along with recommended best practices to be applied in the running of a company.
Part 1: Principles:
Broad Principle of good corporate governance is defined in part 1. The objective of the principles is to allow companies to apply these flexibly and with common sense to the varying circumstances of individual companies. Companies are required by the listing requirements of the KLSE to contain in their annual report a description declaration of how they concern the germane codes to their particular events
Part 2: Best practices in corporate governance:
Part 2 sets out best practices for companies. It identifies a set of guidelines or practices intended to assist companies in designing their approach to corporate governance. While acquiescence with best practices is voluntary, companies are required by the listing requirements of the KLSE to state in their annual reports, the extent to which they have complied with the best practices set out in Part 2 and explain any circumstances justifying departure from such best practices.
Part 3: Exhortations to other participants:
This part is designed to address to investors and auditors to enhance their role in corporate governance. These are purely voluntary.
Part 4 - Explanatory notes and "mere best practices":
Part 4 offers explanatory notes to the principles and best practices set out in Parts 1 and 2 and exhortations set out in Part 3. Additionally Part 4 also sets out best practices directed at listed companies that do not require companies to clarify conditions validating, removal from best practices - "mere best practices".
By virtue of paragraph 15.26 of the KLSE Listing Requirements, all listed companies should state in their annual report how they have applied the principles set out in Part 1 of the Code and the extent to which they have complied with the best practices set out in Part 2 and identify and give reasons for any areas of nonâ€‘compliance, and where applicable, state the alternative practice(s) adopted.
Sanctions for nonâ€‘disclosure:
Where a company fails to disclose the matters set out above in its annual report, it is open to the Exchange to take any action against the listed entity or its directors as set out in the Listing Requirements and section 11 of the Security Industry Act 1983.
Part 1: Principles of Corporate Governance:
The Board: each listed firm ought to be topped by an successful board which should guide and manage the firm.
The board should contain a equilibrium of executive directors and non-executive directors (together with independent nonÂexecutives). This can lead to that a individual person or small opposition cannot direct and affect board's decision making.
Supply of Information: information that is need for board must be updated. Board should be supplied by timely information. Information have to be accurate and in suitable quality in order to enable it to quality appropriate to enable it to eject its responsibilities.
Appointment to the board: a formal and transparent progress must be in order to make an appointment with new directors to the board.
Re-election: it is necessary for all directors to submit themselves for reelection at reelection at regular space, at least every three years.
B: Directors' compensation:
The level and Make-up of compensation: compensation must be sufficient in order to attract and retain directors to be work as companies interests.
Procedure: Firms must establish a formal and transparent progress for improving rule on executive compensation and for fixing the compensation for individual directors.
Disclosure: inside the firm annual report, it is necessary to contain the compensation o each directors.
Conversation among Firms and Investors: Firms and organizational shareholders must be ready, where workable, in order to go into a conversation according to the common accepting of purposes.
AGM: Firms must use the AGM to communicate with classified investors and support their contribution
D: Accountability and Audit:
Financial Reporting: it is one of the board responsibilities to present a balanced, accurate and reliable evaluation of the firm's situation and its futures.
Inner direct: The board must keep a sound structure of internal manage to maintain investors' asset and assets of firm.
Affiliation with the examiners: it is necessary that the board have formal and transparent agreements for keep a good relationship with the firm's auditors.
Part 2: Best Practices in Corporate Governance:
A: The Board of Directors:
Principal Responsibilities of the Board:
Evaluating and approving a Strategic chart for the firm.
supervising the activities of the businesses of company to appraise whether the business progresses are being correctly defined and managed
Recognizing major risks that are faced by company business. In order to make sure that the execution of fitting methods to administer these major risks.
Series scheduling, together with assigning, instructing, securing the reward of and everyplace suitable, substituting senior management.
Improving and executing program related to investor or shareholder interactions rule for the firm.
Evaluating the sufficiency and the truthfulness of firm's management information system, firm's interior control system, and together with systems for conformity with appropriate rules, laws, orders, and guidelines.
Constituting an effective board:
Chairman and Chief Executive Officer
Role of Chairman and CEO should be separated
Where the roles are combined there should be a strong independent element on the board
A decision to combine the roles of Chairman and CEO should be publicly explained
Nonâ€‘executive directors should be persons of caliber, credibility and have the necessary skill and experience to bring an independent judgment to bear on the issues of plan, performance and sources contain key scheduled times and standards of conduct
To be effective, independent nonâ€‘executive directors need to make up at least one third of the membership of the board
Size of nonâ€‘executive participation:
The board should disclose on an annual basis whether one third of the board is independent and in circumstances where the company has a significant shareholder, whether it satisfies the requirement to fairly reflect through board representation, the investment of the minority shareholders in a company
Appointments to the Board:
The board of every company should appoint a committee of directors composed exclusively of nonâ€‘executive directors, a majority of whom are independent, with the responsibility for proposing new nominees for the board and for assessing directors on an onâ€‘going basis
Size of Board
each board must check its size, base on a vision to shaping the effect of the number leading its success
As an integral element of the process of appointing new directors, each company should provide an orientation and education program for new recruits to the board
Board structures and procedures:
The board should gather frequently, with become aware of topics to be argued and should trace its finishes in releasing its responsibilities.
The board should disclose the number of board meetings held a year and the details of attendance of each individual director in respect of meetings held
Relationship of the board to management:
The board, together with the CEO, should develop position descriptions for the board and for the CEO, involving definition of the limits to management's responsibilities
The board should approve, or develop with the CEO, the corporate objectives, which the CEO is responsible for meeting
Quality of Information :
The board should receive information that is not just historical or bottom line oriented but information that goes beyond financial performance and looks at other performance factors such as customer satisfaction, product and service quality, market share, market reaction, environmental performance and so on
Access to Information:
Directors should have access to all information within a company whether as a full board or in their individual capacity, in furtherance of their duties
Access to Advice:
There should be an agreed procedure for directors, whether as a full board or in their individual capacity, in furtherance of their responsibilities to obtain self-governing specialized recommendation at the firm's cost, if needed.
Boards must assign compensation teams, containing completely or chiefly of nonâ€‘executive directors, to advise to the board the compensation of the executive directors in all its shapes, drawing from outside advice as necessary
B: Accountability and Audit:
The audit committee:
The board must set up an audit team of at least three directors, a majority of whom are independent, with written terms of reference which deal clearly with its authority and duties
The Chairman of the audit team must be an self-governing nonâ€‘executive director
Duties of the audit committee:
To establish the meeting of the outside auditors, the examination charge and queries of acceptance or firing
To argue with the outside auditors earlier than the audit originates, the character and range of the audit, and make sure co-ordination where more than one audit firm is involved
In order to evaluate periodically and financial statement of end of the year must consider specifically on:
Each modify in rules and regulations of accounting
Significant adjustments arising through the audit
The going anxiety guess
agreement with accounting standards and other lawful necessities
To talk about difficulties and conditions occurring from the temporary and concluding audits, and subjects the auditors possibly will hope to argue (in the nonappearance of management wherever is essential)
To appraisal the management letter from external auditors and response of managements.
To perform the subsequent where an inside audit task be presents
appraisal the sufficiency of the range, occupations and supplies of the inner audit task
analysis the inside audit agenda and consequences of the inside audit procedure and where essential make sure that suitable act is taken on the advices of the internal audit task
evaluation any evaluation or appraisal of the performance of members of the inner audit task
support any meeting or extinction of senior employees members of the inside audit task
notify itself of acceptances of internal audit employees members and supply the resigning employees member an occasion to present his/her reasons for resigning
To consider any related party transactions that possibly will occur inside the firm or team
To consider the major findings of internal examinations and response of managers.
To think about additional subjects this is described by the board.
The audit team must have unambiguous right to look into any issue within its terms of orientation, the capital which it needs to do so and full right to use of information
The committee should be able to gain outside expert recommendation and to request externals with applicable skill to concentrate, if essential
The audit committee should gather frequently, with become aware of subjects to be argued and must trace its results in discharging its duties and responsibilities
B board should disclose in an informative way, information of the actions of audit teams, the quantity of audit gatherings seized in a year and details of attendance of each individual director in respect of meetings
The Board must set up an inner audit gathering.
if an inside audit gathering does not be present, the Board ought to judge whether there are other way of access enough guarantee of usual evaluation and/or assessment of the efficacy of the system of internal controls inside the firm
The internal audit function should be independent of the activities they audit and should be executed with objectivity, skill and due expert concern
The relationship between the board and shareholders:
Boards must maintain an effective communications policy that enables both the board and management to communicate effectively with its shareholders, stakeholders and the public generally
This policy must effectively interpret the operations of the company to the shareholders and must accommodate feedback from shareholders, which should be factored into the company's business decisions
Part 3: Principles and Best Practices for Corporate Participants:
Investors voting: associational investors have duty such as considering about using of their ballots
Conversation among Firms and Shareholders: Institutional shareholders must persuade straight touch with firms together with productive statement with mutually senior managers and members of board about act, corporate governance and other topics influencing investors' attention
Evaluation of Governance Revelations: after estimating firms' governance understandings, particularly those relating to board structure and composition, organizational shareholders and their consultants ought to give suitable power to all related issues drained to their interest
Auditors from outside firm: the outside auditors must separately describe to investors in harmony with legal and expert conditions and separately guarantee the board on the release of its duties base on specialized regulation.