With the changes of Bursa Malaysia Listing Requirement and Malaysian Corporate Code Governance from the past few years up to year 2012, it is becoming essential for the public listed company to appraise the change in order to comply with the law and regulation and also to ensure sound governance in the organization. Furthermore, there are not only changes in BMSLR and MCCG but the general legal, regulatory and governance framework also have undergone major and minor changes in past years. Therefore, the purpose of this report is to recommend and educate all officers of the company according to the changes in roles and duties of executive management and also the actions plan should be implement by chairman of the board and other officer in order to ensure the encourage internal stakeholder participation and ensure sound governance of the company.
2.1 Changes in the roles and duties of executive management
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In previous time, the responsibility of the directors and executives are only to make sure that the company is complying with the laws and regulation of the country and also to achieve their target which maximize the company profit and also the shareholder wealth. However, in today society, there is not enough for directors that only focus on profit of the company and shareholder wealth but also require focusing more on governance. In today organization, a company board of directors is charged with the responsibility of maintaining good corporate governance. The following are the roles and responsibilities of the executive management changes in today's organizations, including:
Formalize ethical standard in the workplace- In principal 1 recommendation 1.3 of MCCG 2012 had recommended that the board should formalize ethical standard through a code of conduct and ensure all members of the company will comply with it. Therefore, the duty of the Board is to develop a corporate culture of ethics, brewing throughout the company. The board needs to implement an appropriate internal system to support, promote and ensure its compliances by design its own code and system based on the values it prizes as appropriate business behavior. The code of conduct should includes the appropriate channels of communication, conducive to expose employees, customers, suppliers or other stakeholders concerned about potential or suspected violations of the code behavior, or any non-compliance with the law and regulations of the company. For example, the Board may establish a communication link or guide employees how to communicate directly with the Board and opportunities for whistle blowing. The board also should review the code of conduct periodically and the abstract of the code of conduct should be set out on the corporate official website. Therefore, as compared to previous MCCG regulatory framework, MCCG 2012 had required the board of the company concern not only on law and regulation but also ethical standard of the company.
Oversight strategy to deal with sustainable development- In recommendation 1.4 of MCCG 2012 also recommended that the board should ensure that the company strategy to promote sustainable development. The strategy of the company should be pay attention on three aspects of business which include environmental, social and governance which underpin sustainability of the company. Therefore, balancing ESG aspects with the interest of various stakeholders in the company will be the essential duty for the director to enhancing investor perception and public trust. In order to fulfill the three aspect of the business, company should formalize the policies on sustainability and stakeholder management. The strategic of the company must bring benefit to the environment and society such as director can implement go green project. For example, company can plan to produce eco friendly product such as hybrid cars which can help to reduce air pollution and bring a lot of benefit to the consumers and also increase the profit of the company. Other than this, the board also should ensure the company discloses these policies and their implementation in the annual report and also the corporate official website which can help to enhance accountability. According to principal 7 recommendation 7.1 of MCCG 2012 recommended that the board should ensure the company has appropriate corporate disclosure policies. The board should establish an internal corporate disclosure policies and procedures which are practical and include feedback from management. The board should ensure these policies and procedures are complying with the disclosure requirements as set out in the bursa Malaysia listing requirements. In formulating these policies and procedures, the board should follow the best practices and procedures. Other than this, the boards of directors also have the responsibility to act as the guardian of fairness, transparency and accountability in all of the company's policies, implementation and commercial transactions, and safeguard the interests of investors and the broader interests of stakeholders. In order to fulfill this responsibility, the director board should remain active, informed and in charge of the supervision of the company. Overall, the MCCG 2012 had recommended the board should be concern environment, social, governance and also laws and regulation but not as the former director of its main responsibilities focus on maximizing shareholder wealth
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Review and public its board charter- By referring to principal 1 recommendation 1.7 of MCCG 2012 had recommended that the board should formalise, review regularly and make its board charter transparent to the public. Board Charter contains the strategic intent of the Board of Directors, and an overview of the Board of Directors roles and responsibilities. The board charter represents a source reference and primary induction literature, provide insights to future members of the Board and senior management. It will also assist the Board to assess their own performance include its individual directors performance. In establishing a board charter, it's crucial for the board to outline the key values, principles, and ethos of the company as the formulation of policies and strategies development of the company are based on these considerations. The board should clearly differentiate the responsibilities and powers between the board and management, the different type of committees establish by the board, and different between the chairman and the CEO in the board charter Other than that, the board also should include the processes and procedures for convening board meetings inside the board charter and the board charter also should be review regulatory by the board and the board charter should publish on the company official website. Committees of the board also play an important role in the governance process and each committee of the board should have a written charter, which has been approved by the board and disclosed in the annual report. Therefore, we can see that in MCCG 2012 had recommended that a company should make it board charter transparent to the public which the previous MCCG do not put concern on that.
2.2 Reason for board to review their functions and position
Reinforce independence- According to recommendation 3.1 of MCCG 2012 recommended that the board should undertake an assessment or evaluation of its independent directors annually. Independent directors can help to reduce risks arising from conflict of interest or undue influence from interested parties by brings independent and objective judgment to the board. Exercise and objective judgment of the existence independent directors on the board by itself can be compromised by, amongst others, familiarity or close relationship with other members of the Board. Thus, it is crucial for the board to conduct an annual assessment of the independence of its independent directors. When conducting independence, the board should focus beyond the independent director's family relationships, background and economic to consider whether the independent director is able to continue provide independent and objective judgment deliberations. Criteria to evaluate independence should be establishes by the nominating Committee. The board of directors should apply these criteria at the time of admission, annually and development of any new interests or relationships. The board of directors should disclosed that the company has carried out the evaluation on appointment or reappointment of independent directors in the annual report and any notice convening a general meeting. Other than relationships, background and economic, the evaluation criteria for independence of directors should also include tenure. By referring to the principal 3 recommendation 3.2 of MCCG2012 had recommended that the tenure of the independent directors should be no more than a cumulative period of nine years. Upon completion of the nine years, an independent director may redesign as a non- independent director and continue to serve on the board. Independence may impair by long tenure. Therefore, the maximum tenure of an independent director is 9 years. The nine years periods can be either continuous service for 9 years or accumulated nine years of service with intervals. However, after the 9 years period, the independent director may still continue to serve for the board as non- independent director. However, in principal 3 recommendation 3.3 of MCCG 2012 had stated that an independent director can remain as an independent director after serving a cumulative term of nine years may subject to the assessment of the nominating committee. Other than this, person who appointed as independent directors must meet the definition of an independent director to 1.01 and practice are set out in Note 13 of the Listing requirements.
Ensure balance of the board- One of the reasons that the board or chairman should review their function or position is to ensure that balance of power and authority. According to principal 3 recommendation 3.4 of MCCG 2012 which had recommended that the positions of chairman and CEO should not be held by a same person but different individuals and the chairman must be a non-executive member of the board. The reason is because of combining these positions concentrate too much power in a single person. Furthermore, the board shall comprise a majority of independent directors if the chairman is not an independent director in order to ensure the balance of power and authority on the board. Separation of the position of Chairman and CEO, can help to promote accountability and to promote the division of responsibilities between them, can also help to maintain a balance of power and authority, so that no one person has unfettered powers of decision.
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Dynamic and complex business environment- According to principal 4 of MCCG 2012 recommended directors should devote sufficient time to fulfill their responsibilities, and regularly update their knowledge and improve their skills.. In principal 4 recommendation 4.2 of MCCG 2012 stated that the board should ensure its members have access to appropriate continuing education programmers. In a dynamic and complex business environment, it is necessary that directors devote sufficient time to update their knowledge and improve their skills through appropriate continuing education programmers and life-long learning which will help to enable directors to sustain their active participation in board deliberations. Therefore, the director able to generate a quality strategy and make more reliable decisions, and be able to face different challenges from a changing environment. . Furthermore, the listing requirements states that companies must continuously assess and determine the training needs that are relevant to their directors. One of the defining characteristics of professional directors is wisdom and honesty. An individual director's commitment to sustainable development will promote intellectual honesty which is a important part of good governance and is by extension a part of each director's fiduciary responsibility. Sustainable development will equipped Directors with the best serve the interests of the company.
Actions plan to ensure internal stakeholder drive and sound governance.
There are few actions that the board and executive can take to ensure sound governance. One of the actions is development of code of ethic of the company. The company can formalize ethical standard through a code of conduct and ensure all members of the company will comply with it.
Development of code of conduct and ethics within organization
Step 1: Involve senior management
A strong leadership is a important factor in creating an ethical culture in the organization. Chairman and top executive management should demonstrating leadership with respect to values and ethics in the development of an organizational code of conduct. Involvement of the top executive can help raise the profile of the code of conduct within the organization, and the board and other officer should ensure that it is aligned with the organization's vision and strategic outcomes, and facilitate the approval process.
Step 2: Establish a diversified, multi-disciplinary consulting group
In order to increase the effectiveness of the organization code of conduct, it needs to be relevant to all employees who are subject to it. Therefore, they are representing key stakeholders and with cognitive and cultural diversity which form by the multidisciplinary team and diverse team. However, if board and executive management are not able to form a multidisciplinary team, the various functions within the organization and special interest groups should at least consult in order to understand their needs. Since the thinking around values, ethical risks and expected behaviors will have been inclusive of the organization's workforce diversity, then this will help to facilitate the verification process with employees.
Step 3: Set the Objectives for your Organizational Code
The objectives of the code of conduct need to be set start from the beginning, as the objectives of the code will influence the choices made with respect to the content highlighted in the code. The executive management of the company should set the objectives of the code at the beginning of time and explaining to employees what the organization intends to achieve with its code. The effectiveness of the code can be reviewed to measure whether the objective are being achieved through linked the objectives to expected outcomes.
Step 4: Customized Code of Conduct for the needs and values â€‹â€‹of the organization
To determine the organization's core values
The first step in the establishment of the organization's Code of Conduct is the board and executive team need to determine the expectations of the organization, for example, the purpose, powers, obligations, duties and responsibilities. Once aspirations have been defined, the top management should begin consultations with employees on their core organizational values. The core values define what the organization represent and the principles by which it will achieve its goals.
Identifying Risks: Assessing the potential for behaviours inconsistent with the values
In customizing the code to the organization's needs, it is important to focus on the risk areas where behaviour may be inconsistent with organizational value because it will increase the relevance and effectiveness of the code. Examination of areas of risk for conflicts of interest should include in the risk assessment review. Effective risk assessments should done in consultation with senior management, and are validated by middle managers
Step 5: The verification organization code (draft) behavior with the bargaining agents and employees.
An effective organizational code of conduct is required to consultation with bargaining agents and employees. Therefore, once the draft code of conduct and ethics has been completed, it is necessary to verify its contents with these stakeholders through consultation. This will ensure that the values â€‹â€‹and expectations of behavior related to employees and the environments of their workplace. This is an excellent opportunity for executive management and their employees engage in the dialogue about values â€‹â€‹and ethics and organizational commitment to maintain an ethical culture in the workplace. Consultations between executive management and employees may also identify some of the areas where increased training, awareness or further discussions will be needed during the development phase of the organizational code and ethics.
Step 6: Implementation and Monitoring organization code of conduct and ethics
Development of code of conduct and ethics of an organizationally is an important first step in reinforcing and creating an ethical culture, other important key factors are communication, learning, leaderships, performance management, and coaching. The boards of the company need to carefully consider how to conduct the code, in order to maximize its effectiveness. Furthermore, board should continuing monitoring and evaluation of the code which can help organizations to determine whether the code is to achieve its expected results.
Implementation of corporate social responsibility policy
In today organization, it is crucial for the company to implement program of corporate social responsibility. A corporate social responsibility can help the company to gain competitive advantages compare to the other company which had not implement the CSR program. Basically, Corporate social responsibility is means that a corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare and also provide equitable treatment of all stakeholders such as employees, consumers, supplier. The following will be the steps for the company to implement a corporate social responsibility policy:
Step 1: Explore commercial opportunities and analysis of the business environment
Internal CSR working group
Actively involve your employees in the design and implementation of CSR policies. This will prevent insufficient support for the CSR policy from the organisation in the future. Ensure that the relevant departments are represented in the working group, i.e. the management, purchasing, production, HR, marketing and communications. Make the discussion of CSR an integral part of team meetings and be creative. CSR demands an innovative look at the company.In order to determine the business case of corporate social responsibility for the company, it is important for the board to first know what is the expectation of stakeholders from company in the field of CSR.. Therefore, the chairman and executive management should subsequently link the expectation of the stakeholder to the company core activities and translate into business opportunities as many as possible. However, the board of company should not to do this alone but put together an internal working group to go through together and supported on the policy plan. An example of the internal working group will be the employees of the company who performing the day to day operation work of the company. The board can communicate with employees about CSR efforts. The board should take an interest not only in what their employees say, but also in what they actually know. In order to ensure internal stakeholder drive, the board also can invite employee opinion or thinking about where the company directs its CSR efforts or encourage employees direct participation in those efforts. Beside this, the board also should required the stakeholders regular communication about CSR goal and recognize the contributions of the employees, as they have invested the most energy, time and commitment towards achieving those goals.
Step 2: Evaluation on the company
After the completion of step 1, the executive management should have an idea of the priority corporate social responsibility offers to the company and how to respond to stakeholder expectations on the corporate social responsibility of the company. The next step for the board is to scrutinise company within the context of corporate social responsibility. By doing this, it can help to give the board an idea of what company CSR policy plan should be aimed.
Step 3: Set the goals of CSR policy
In step 3, the executive management can select the risk, improvement points and business oppurtunity that need to focus, then subsequently formulate selected improvement point, rish and business oppurtunity. After that, the board and executive management should determine which are short term goals and long term goals. After that, the management also can determine whether additional data and research are neccessary for the CSR objectives and consider whether to. join a sector-specific CSR (audit) programme which can help to give the company CSR policy more impact.
Step 4: CSR policy plan
After the company determined which CSR goals have priority, then the executive manangement can start conform the objectives and actitivies of corporate social responsibility objectives and activities into the current processess and system. The executive manangement required to allocate the responsibility and duty to the staff for achieve the goal. After allocated duty for the staff, policy plan is now ready and company can take action. Futhermore, management of the company need to set out CSR policy plan on the company offficial website and to review and update it regularly. Lastly, executive management should make sure the employees are understand their role in implementing corporate social responsibility.
As a conclusion, it is important for all board members to reconsider their role and duty in today organization in order to comply with the law and regulation such as the Bursa Malaysia Listing Requirement and other governance framework. Futhermore, its is crucial for the chairman of the board and other officer of the company to implement some action plan such as development of code of conduct and ethics of the company, and implementation of corporate social responsibility policy of the company in order to ensure sound governance while facilitate the company to remain its competitive advantages.