1.1 Introduction of Corporate Governance Corporate governance is the systems by which companies are directed and controlled. It is concerns the relationships among the management, Board, shareholders and other stakeholders. Hence, it is about the way or how the boards oversee the operation of a company by its manager, and the accountability of the board members to the shareholders and company and its transparency.
1.2 The Important of Corporate Governance
1.2.1 Key Element to Attract Investors and Enhance Their Confidence
'Investor Relation (IR) plays an important role in attracting investor confidence and good governance in Malaysian companies  '. Better corporate governance provides investors a timely dissemination of reliable, full and accurate information relates to the company. If OneFamily Berhad has promoted the open disclosure policies, they are able to attract more investors and enhance their confidence in investing in their expansion plans  . So, the business will have support from its investors and will be more sustainable.
1.2.2 Easy to Raise Capital
Get your grade
or your money back
using our Essay Writing Service!
Good corporate governance can raise capital more easily and cheaply in the market where capital is a scarce resource. Since the board is going for listing, they need a high cost of planning and launching an Initial Public Offering (IPO). The process is tedious and need to comply with regulatory requirement. Hence, it may involve many parties and some of the cost may incur  . Besides that, OneFamily Berhad also needs capital to fund the expansion plans. If the company adopts good corporate governance, they are able to raise fund easily from the investors.
1.2.3 Prevent Corporate Scandals
Much country emphasis on corporate governance is because of the high-profile corporate scandals  , globalization and increased investor activism. Financial malpractice  may cause the corporate scandal. Good governance promotes open disclosure policies, timely dissemination of reliable, full and accurate information to all players and accountability. If OneFamily Berhad adopts good corporate governance, they can prevent from the corporate scandals through transparency of financial statement and open disclosure policies and to increase their reputation.
1.2.4 Long Term Sustainability
Corporate governance contributes to sustainable economic development of the company. It can be done by enhances the company performance and increase their access to outside capital. Well governed company usually accountable and transparency to its shareholders and other stakeholders. So, basically they are more sustainable compared to weak corporate governance company. Improve in internal control system will ensure the quality decision making of company. Since OneFamily Berhad decided to diversify their business in other industry, what they need is the long term sustainability of the business and to gain competitive among their investors.
1.2.5 Protect Shareholder Right
Corporate governance protects the right of shareholder by enhance disclosure and transparency. It addresses the agency problem throughout a combine of company law, stock exchange listing rules and self-regulatory codes. Since OneFamily Berhad going to be listed in Bursa Malaysia, the director needs to act bona fide and accountable for the success of company and maximizing shareholder's wealth as director has owed their duty to company and shareholder. Better corporate governance ensures that shareholders are sufficiently informed on decision concerning fundamental issue. Hence, shareholder right can be protected by transparency of the financial statement and timely and accurate disclosure of information.
1.2.6 Build Reputation and Brand Image
Good corporate governance plays essential role in underpinning the integrity and efficiency of financial market, and enhances the reputation of the company. Good reputation enhances profitability of the company because it attracts customers to products, investors to securities and employees to its jobs. Besides, company behave ethically and governed in a good manner builds a reputational capital which is competitive advantage. If OneFamily Berhad adopts good corporate governance, they are able to increase their reputation and brand image of the company. Hence, they able to attract more expertise (employee) work for them in the monkey-breeding farm and animal testing laboratory. On the other hand, good corporate governance also helps them to attract local and foreign pharmaceutical (customer) and public (investor) to fund in the business.
2.1 Unbalanced of Board
2.1.1 Board Composition
Always on Time
Marked to Standard
The board should include a balance of executive directors, non executive directors and independent non executive directors  and at least one-third of the board membership should be made up by independent non-executive directors  . Since the whole board is made up by the Lakitua's family members and no independent directors in the board, the board is ineffective. The company may fail to provide the necessary balance on board's view and the interest of the stakeholders and fail to make independent judgments. Moreover, it may lead to ineffective leadership; the executive directors may maximize their own interest rather than the interest of the company.
2.1.2 Chairman of the Board cum Chief Executive Officer
Chairman is the leader of the board of directors who oversees the whole board whereas CEO  is the senior executive director who oversees overall management and operation of the company. Thus, role of chairman and CEO should not exercised by the same individual  . Lakitua is the chairman and the CEO; therefore, he may have an excessive concentration of power on the decision making and allow him made decision on his own interest and at the shareholder's expenses. In addition, Lakitua have no proper checks and balances  in his lines of authority and may sway decision making anytime and misuse of power empowered by the other board members. It means he has overriding of controls and not independent from the operation.
2.1.3 Appointment of Directors
Appointment of the new directors to the board should be a formal and transparent procedure  . The recommendation to the board is carried out by nominating committee  . Since the company does not have nominating committee, procedure of appointment of the directors is unable to carry out as formal and transparency. OneFamily Berhad may fail to make a suitably qualified candidate to fill in vacancy to maintain board balance.
2.1.4 Remuneration Policy
Every board should appoint remuneration committee which consists wholly or mainly of non-executive directors  . The duty is to recommend to the board on remuneration of the executive directors based on their performance  or linked to expertise, experience and responsibility level  . Since the remuneration of the directors is decided by Lakitua in consultation of Binimuda, the remuneration policy is unbalanced and may excessive compensation. The process may cause the conflict of interest and lack of objectivity. In addition, it may have no transparency and less accountability to shareholders and it will reduce their confidence.
2.1.5 Company Account
The company accounts are audited by external audit firm which has related party transaction with OneFamily Berhad. The transaction may not transparency to shareholders in accordance with statutory and professional requirement. It may affect their confidence on the quality of financial statement and the sustainability of the company as the reputation drop. Besides that, it fails to maintain sound governance of the objectivity and independence to provide honest and professional opinions.
2.1.6 Professionalism or Qualifications
The higher of education level, the higher awareness and demand for corporate accountability. Since the whole board of directors is not business studies educated, they may have problem in managing the business. Hence, this will affect the sustainability of the company because of its structure, authority line and report system is not strong to maintain a good internal control system.
2.2 Corporate Social Responsibility
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
Corporate social responsibility refers to the decision making link to ethical value  , compliance with the legal requirement and respect for people, communities and environment. Good CSR help company achieve sustainability  . Animals have the same right to life as human beings, so it is unfair to them for the benefit of mankind. Hence, OneFamily Berhad has involved in the ethics of animal testing issue since they plan to invest in the animal testing laboratory. Therefore, the company public goodwill and trust may reduce. On the other hand, company reputation and image may also affected and draw negative attention of the media. Hence, it will increase the risk of losing customer support.
2.3 Internal Control System and Risk Management
Internal control system provides reasonable assurance regarding the achievement of objective  . OneFamily Berhad is family run organization, the directors are not business studies educated and no board committee in the company, it may fail to maintain a sound system of internal control to safeguard shareholders' investment and accountability of the company's asset  . Therefore, they have weak general control and the risk  will be higher. The company may fail to maintain reliability of internal and external reporting for management decision and process to generate timely, relevant and reliable financial information. In addition, it may fail to ensure accuracy of accounting record and control over the flow of the transaction. It may also fail to compliance with laws and regulations to avoid public scandals.
2.4 Investor Relation
Investor relation plays an essential role in attracting investor and enhances their confidence to ensure the success of the company. Effective and honest communication between investor and company will result in long term investor relationship. The management needs to have open disclosure policies, timely dissemination of reliable, full and accurate information to investors. Accountability of the board required separation of the management and the directors to have regard to the shareholders' interest to prevent improper exercise of power, inefficient use of resources and lack of transparency in financial reporting. Besides that, it focuses on minority protection for the shareholders  . OneFamily should treat them fairly on the decision making and giving them the right to voice out to defense their right. Director's remuneration is also one of the concerns of the investors. They are worried the remuneration policy is unbalanced and may excessive compensation. Hence, if OneFamily is unable to handle good investor relationship, they are unable to attract more investor to put in more capital to diversify their business.