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Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business success and corporate accountability with creating shareholder value, whilst taking account the interests of stakeholders. The principles underlying the Malaysian Code of Corporate Governance focus on four areas including board of directors, directors' remuneration, shareholders and accountability and audit.
Background of the Companies
The two companies that I have chosen are Fraser & Neave Holdings Bhd and Nestlé (Malaysia) Berhad. F&N is a market leader and household well known brand in Malaysia which engaged in the manufacture and sale of beverages and dairy products. It was operating since 1883 and has employed nearly 3000 employees in operations. (Fraser & Neave Holdings BHD, 2009) Nestlé is a world's leading food company that engaged in manufacturing, marketing and sale of food products. The company has begun since 1912 in Malaysia and it has nearly 5000 employees. (Nestlé, 2010)
Comparison between both of the companies in accordance with Malaysian Code of Corporate Governance
Both of the company are listed on Bursa Malaysia and committed to very high standards of corporate governance through integrity, transparency and accountability as well as remains responsible to their shareholder, stakeholders and the community.
The chairman and CEO of F&N is separate person. Y.A.M Teng Ku Syarif Bendahara Perlis Syed Badarudin Jamalullail is the F&N's chairman, while the CEO of the company is Mr Tan Ang Meng. The chairman and CEO of Nestlé is different person. Tan Sri Dato' Seri Syed Zainol Anwar Jamalullail is the Chairman whereas Peter Robert Vogt is the CEO or Managing Director. This implies that both of the companies also have a good corporate governance.
Independent non-executive directors of F&N make up of at least one-third of the board membership. There are 4 independent non-executive directors of 11 board members. All directors are non-executive directors except the CEO. The same as F&N, the Board of Nestlé also composed of more than one-third of independent non-executive directors. There are eight Board members while four members are independent non-executive directors. This shows that Nestlé has the higher corporate governance because its ratio of independent non-executive directors is higher compare to F&N.
The non-executive directors of the both of the F&N and Nestlé are capable, skill and experience. The F&N's non-executive directors have a varied and relevant of experience and skills which are core for manage the company business operation as well as approve and make strategic plans, business initiatives, investment and funding decisions. Likewise, the non-executive directors of Nestlé also have diverse experience including professional backgrounds, a high level of business, international and financial knowledge, which is necessary and important for setting of strategies, monitoring of strategy achievement, and effectively leading the company. Both of the companies also have high standard of corporate governance.
The Board of F&N had appointed a senior independent non-executive director for the company. Leslie Oswin Struys is the senior independent non-executive director of F&N and it had been stated in the annual report. He was appointed to act as an additional communication channel for corporate governance affairs in the company. In contrast, Nestlé does not appoint a senior independent non-executive director. This reflects that F&N has higher standard of corporate governance compare to Nestlé.
Size of the Boards of both of the companies was examined to determine the impact of the number upon its effectiveness. The board of F&N has eleven directors where six non-executive directors are nominees of the two largest shareholders and four are independent non-executive directors and one executive director, CEO. The Board is broadly balanced that reflect the interests of significant shareholders, management and minority shareholders in the company. On the other hand, the Board of Nestlé is well balanced where five independent non-executive directors, one non independent non executive director, and two executive directors. The independent non-executive directors provide the independent unbiased views and advice in its decision making to act that the best interest of the company, whereas the duty of executive is to ensure the implementation of the policies and strategies that set by the Board. The boards of these two companies are balanced but F&N hold a greater corporate governance because it has higher numbers of non-executive directors.
The Board of F&N held 8 board meetings in the year 2009, the details of directors' attendance was recorded. Most of the board of directors attended 8/8 of board meetings where five meetings were held at its registered office and the other three meetings were held off-site in Kuala Lumpur. Four meetings of directors were held by the Board of Nestlé in the year. The record of attendance is all the directors have full or 100% attendance except Tan Sri Dato' Ernst Zulliger and Mohd. Rafi k Bin Shah Mohamad only attended three of four general meetings. F&N held the meetings more frequent compare to Nestlé, therefore, F&N has the higher standard of corporate governance.
The Nominating Committee of F&N composed of four non-executive directors, three of whom are independent with the responsibility in assessing recommendations for the Board. All the members attended the only meeting scheduled during the year. In the meeting, proposed changes in the composition of the main Board, subsidiary boards and committees were reviewed and submitted recommendations to the Board. They also reviewed and kept along, and assessed the developments and effectiveness of board performance. Nestlé does not consider it necessary to setting up a separate Nomination Committee as the turnover of directors is very low with only eight persons and that all proposals for appointment and resignation of directors are fully deliberated by the board of directors. Two nominations of new directors were fully deliberated by the Board in 2009 which is the nomination of Datuk Rafi ah Binti Salim as an independent non-executive director and Peter Robert Vogt was appointed as the managing director. This indicates that Nestlé has lower standard of corporate governance compare to F&N because it does not designated Nominating Committee.
The Remuneration Committee of F&N was formed in May 2001, consisting four non-executive directors which its responsibility to assessing succession planning, remuneration policies and practices of the company. All the Remuneration Committee members attended the two meetings that held during the year. Unlike F&N, Nestlé does not establish a Remuneration Committee due to the managing director, and the finance & control executive, Marc Philippe Seiler and the non independent non-executive Director, Dato' Frits Wout Marie van Dijk are proposed and employed directly by Nestlé S.A. Each of these directors is employees which based on expatriation employment contracts and their remuneration package in according to the remuneration practices of the worldwide Nestlé group. The remuneration paid to the chairman and other independent non-executive directors are proposed by the company to the Board. Hence, F&N act in higher standard of corporate governance because of the non-establishment of Remuneration Committee by Nestlé.
The re-election and re-appointed procedures of F&N's directors are accordance in the Company's Articles of Association. Elections of new directors are held at the Annual General Meeting as following the first appointment. One-third of the directors rotationally submit themselves for re-election by shareholders at every AGM of the company. The re-election and re-appointed of Nestlé's directors are contained in Articles 90.1 and 90.2 of the Company's Articles of Association, one-third of the directors shall be nominated themselves for re-election by shareholders at the Annual General Meeting, and all directors will retire from office once at least in each three years. Both of the companies also have a proper re-election in accordance Company's Articles of Association and act in good corporate governance.
During the year 2009, the F&N' directors attended various external and internal training programme and seminars such as Directors' Continuing Education Programme, Mandatory Accreditation Programme, The Global Economy in the Aftermath of the Financial Crisis, and Risk Management Programme. From time to time, the directors attend training to keep abreast with current developments as well as the new statutory and regulatory obligations. Besides, as the continuous training for Nestlé's directors, the management updated them on a timely basis with reading material based on latest development on directors' roles and responsibilities. For example, the managing director had attended training on "Crisis Management" and the finance and control executive attended the Mandatory Accreditation Programme. The other directors have attended relevant trainings in areas to their capacity as directors from time to time. The both companies are upholding good corporate governance which providing vast of training to directors.
The Audit Committee of F&N comprises five directors, the majority of whom are majority of independent Board members, including the Chairman and a member who is an accountant. The Audit Committee's chairman was Tan Sri Dato' Dr Lin See Yan. Mr Anthony Cheong Fook Seng is a member with an accounting qualification. A total of four meetings were held and all the members attended all the meetings during the year. The Audit Committee of Nestlé consists of five members who are all independent non-executive directors. The post and current Chairman of the Audit Committee are both qualified chartered accountants, being members of the Malaysian Institute of Accountants. During the year, the Audit Committee held five meetings and a quorum established by the presence of the Chairman and two members in the Audit Committee meetings. The members had planned and conducted internal audits and to ensure that the Company's financial statements are prepared in accordance with GAAP. This proved that Nestlé has better corporate governance because the chairman of Audit Committee is a qualified chartered accountant and the number of its meetings is higher compare to F&N.
In conclusion, overall F&N has a higher standards of corporate governance compared to Nestlé, therefore Nestlé have to make improvement. But both of the companies were trying to pursue the best practice and upholding the highest of corporate governance in compliance the Malaysian Code on Corporate Governance [Revised 2007] in order to protect the companies' reputation, shareholders and stakeholders.