Strengthening of Corporate Governance - Strengthening the Sustainability and Competitiveness of the Capital Market

Strengthening of Corporate Governance

The recent developments in corporate governance in Malaysia reflect a strong commitment to enhancing transparency, accountability, and sustainability among PLCs and MSMEs. This commitment is evident through various regulatory initiatives and policies aimed at fostering greater openness in corporate practices, which enhance the flow of information to stakeholders and promote trust in the business environment.

General Meeting

In August 2024, the SC introduced a policy requiring PLCs to hold hybrid or physical general meetings starting 1 March 2025. This decision stems from the need to ensure meaningful engagement between boards and companies with their shareholders at least once a year, enhancing accountability and transparency in shareholders interaction. While fully virtual meetings played an essential role during the pandemic, the shift back to hybrid or physical meetings is viewed as a crucial step to safeguard shareholder rights and promote more effective engagement.

The policy was introduced following completion of the benchmarking study conducted by the SC on practices from relevant jurisdictions, engagements with selected Malaysian PLCs, and analysis of feedback received by the SC from both local and global investors, who generally expressed their preference for hybrid or physical meetings given that these facilitate meaningful shareholders engagement.

Corporate Governance Monitor 2024

On 4 November 2024 the SC released its Corporate Governance Monitor 2024 (CG Monitor 2024) which provided an update on the adoption of the Malaysian Code on Corporate Governance 2021 (MCCG 2021) by public-listed companies based on disclosures in their Corporate Governance reports. The 2024 edition of the CG Monitor looks at adoption of the MCCG, based on information in CG Reports issued by PLCs for financial years 2022 and 2023.

The CG Monitor 2024 provides detailed observations on selected best practices in the MCCG 2021. This includes best practices introduced in the 2021 update of the MCCG, particularly those related to sustainability. It also highlights the Step Up practices and best practices that have been adopted by 60% or fewer PLCs. These practices are categorised as practices with ‘Low Adoption’. The CG Monitor 2024 also includes two feature articles; by Professor Mak Yuen Teen titled ‘Corporate Governance Practices in Malaysia Continue to Improve’ and by the Institute of Corporate Directors Malaysia on ‘Improving Disclosure of Board and Senior Management Remuneration’.

Key Highlights

Out of the 48 MCCG best practices, 30 have an adoption level of above 90%.
As of 1 October 2024, 67% of PLCs have boards where at least 50% of its directors are Independent Non-Executive Directors (INEDs). However, among the 261 PLCs led by an Executive Chairman, only 60% have a board composition of at least 50% INEDs, highlighting the need for continuous effort to enhance independent oversight within these boards. This highlights the need for further improvement to ensure stronger independent oversight.
The adoption of the nine-year tenure limit for INEDs has improved, with 18% of PLCs (165 PLCs) implementing this best practice. Additionally, the reliance on the two-tier voting process to retain INEDs up to the 12-year limit has significantly decreased, from 96 PLCs in 2023 to 37 in 2024, reflecting a positive shift towards better governance practices. However, there remains room for improvement, as a considerable number of companies continue to retain INEDs up to the 12-year limit. PLCs are encouraged to leverage the Institute of Corporate Directors Malaysia (ICDM) Director Sourcing and Placement services, which feature a pool of over 1,000 board-ready individuals.
Participation of women on boards (WOB) continues to increase, with women holding 1,936 board positions, representing 27% of all board roles across PLCs. However, 39 out of the Top 100 PLCs4 have yet to reach the 30% WOB target.
In 2024, over 50% of PLCs conducted their AGMs virtually or in hybrid formats, a practice that proved effective during the pandemic. However, with the mandate for general meetings to be conducted physically or in hybrid formats coming into effect on 1 March 2025, PLCs must fully transition to these formats. This shift aims to enhance shareholder engagement and foster stronger governance by enabling more meaningful participation and interaction between shareholders and the board.
Sustainability-related best practices were introduced in MCCG 2021 and since then there has been a significant increase in the adoption of these practices. More than 96% of companies have adopted the sustainability related practices in 2023, which focus on the responsibility of the board and management in the oversight of sustainability, communication on sustainability strategies and targets with stakeholders, as well as ensuring that the board remains informed about relevant sustainability developments. However, the CG Monitor emphasises that PLCs need to improve the integration of sustainability metrics into the performance evaluations of both the board and senior management. The NSRF will play a key role in establishing consistent sustainability-related disclosures in line with international standards. PACE initiative will further support companies by providing resources, policy guidance, and capacity-building programmes to enhance sustainability reporting and governance.

Corporate Governance Watch (CG Watch) 2023

On 12 June 2024, the Asian Corporate Governance Association (ACGA), in collaboration with CLSA Ltd, released the ASEAN chapter of the Corporate Governance (CG) Watch 2023 report, titled ‘Spectrum of Standards: Regulators Set the Tone on CG Progress’. CG Watch 2023 is based on the ACGA’s biennial corporate governance assessment of corporate governance practices across 12 Asia Pacific markets. Malaysia maintained its fifth position and was recognised for its continued progress in several key governance areas. Australia topped the ranking, followed by Japan, Singapore and Taiwan. Countries were assessed across seven categories.

Malaysia secured first place in the auditors and audit regulators category, showcasing the strength of its audit oversight framework across the region. The ACGA recognises that the AOB plays a key role through regular inspections, publishing enforcement outcomes, and leading initiatives such as Audit Quality Indicators.

Malaysia also ranked second in the CG Rules and Listed Companies categories, demonstrating the effectiveness of initiatives such as the one-woman board rule and mandatory sustainability training for directors. The report also identified areas for further enhancement, including remuneration disclosures for directors and strengthening investor engagement. The SC will continue to focus on these areas, working towards further alignment with international standards.

Mitigating Systemic Risks And Promoting Financial Stability

Enhanced Risk Governance Framework

In 2021, the SC-wide risk governance framework was enhanced as part of an overall initiative to have an effective integrated and predictive risk surveillance to maintain regulatory agility.

The structured risk governance framework integrated the wider spectrum of risks such as technology, cyber and conduct risk at the SC’s Systemic Risk Oversight Committee (SROC) and Accounting, Market and Corporate Surveillance Committee (ACMS).

Intensified surveillance

The SC continued to intensify its surveillance of systemic risk to maintain market resilience and stability. Regular SROC engagements were held to deliberate concerns emanating from various segments across the capital market. Domestic equity and bond market, foreign fund flows and trade participation continued to be monitored closely for potential stress points.

In addition, measures and economic stimulus packages introduced by the government to weather the impact of COVID-19, market trading conduct and the financial position of listed companies were among the focus areas for discussion.

Thematic assessments

The SC also conducted thematic assessments covering investors’ fund flows, the position of firms, and policy decisions to ascertain the possible impact on the capital market. In 2021, the SC reviewed and enhanced its crisis indicators on potential emerging risks in the
capital market.

The enhanced crisis indicators provided a reference point for escalation to SROC when the identified indicators and triggers materialised and ensured prompt response to manage and prevent any issues of concern that might lead to a systemic crisis.

Joint regulatory discussions

In 2021, the SC conducted frequent joint regulatory discussions with other authorities such as Bank Negara Malaysia (BNM) and Labuan Financial Services Authority (Labuan FSA) to identify systemic risk concern areas within the financial and capital markets in Malaysia.

Monitoring of various components of the capital market

The SC continued its efforts to undertake a methodological and integrated approach to ensure any potential systemic risk was being monitored, mitigated, or managed. Figure 1 highlights the findings from the following risk assessments on the various components of the capital market.