Malaysian Code On Corporate Governance 2012 - Regulatory FAQs

Malaysian Code On Corporate Governance 2012

Who is the Malaysian Code on Corporate Governance 2012 (MCCG 2012) targeted at?
The MCCG 2012 is specifically targeted at companies listed on Bursa Malaysia. All companies are however encouraged to adopt the principles and recommendations of MCCG 2012 and make good corporate governance an integral part of their business dealings and culture.
How do listed companies comply with the MCCG 2012?
The recommendations are standards that companies are expected to adopt as part of their governance structure and processes. Listed companies should explain in their annual reports how they have complied with the recommendations. As there is no ‘one-size-fits-all’ approach to corporate governance, companies are given the flexibility to determine the best approach to adopting the principles within the MCCG 2012. Where there is non-observance of a recommendation, companies should also explain the reasons.
When will the MCCG 2012 be effective?
The MCCG 2012 is effective immediately. However, the first batch of companies that will be required to report its extent of compliance with the MCCG 2012 will be those with financial year ending 31 December 2012. For example, where a company’s financial year ends on 31 December 2012, disclosure will be required in relation to the financial year 1 January – 31 December 2012 and should be made in the annual report published in 2013. Where a company’s financial year begins on 1 July 2012, disclosure will be required in relation to the financial year 1 July 2012 – 30 June 2013 and should be made in the annual report published in 2013. Listed companies are however encouraged to make an early transition to the principles and recommendations elaborated in the MCCG 2012.
What is the rationale for revising the Malaysian Code on Corporate Governance 2007 (2007 Code) and replacing it with the MCCG 2012?
The MCCG 2012 was revised after taking into account changing market dynamics, international developments and the need to continuously recalibrate and enhance the effectiveness of the corporate governance framework. The MCCG 2012 is the first major deliverable of the Corporate Governance Blueprint 2011 (Blueprint) launched by the SC in July 2011 and seeks to implement most of the recommendations in the Blueprint.
How is the structure of the MCCG 2012 different from the previous codes?
The MCCG 2012 adopts a new structure which provides for greater clarity, more information to companies and allows for simpler reading. Essentially, each principle in MCCG 2012 is followed by recommendations and commentaries. The principles encapsulate broad concepts underpinning good corporate governance that companies should apply. The recommendations are specific standards that contribute towards the principles. Listed companies are expected to adopt these standards as part of their governance structure and processes. Each recommendation is followed by a commentary which seeks to explain and assist companies in understanding the recommendation. The MCCG 2012 has included some of the best practices from the 2007 Code. For ease of reference, a comparison is provided under Table 1 in the MCCG 2012.
What are the key amendments made in the MCCG 2012?
Some of the key areas that have been strengthened in the MCCG 2012 are as follows:
Roles and responsibilities of the board
The board is required to formalise ethical standards through a code of conduct and ensure company strategies promote sustainability. It is also expected to formalise a board charter.
Composition of the board
The board should establish a Nominating Committee, chaired by a senior independent director, who is responsible to oversee the selection and assessment of directors.

The Nominating Committee is charged with developing a set of criteria including policies formalising its approach to diversity of the board.
Independence of independent directors
The tenure of independent directors is capped to a cumulative period of nine years. Upon completion of the nine years, such directors can be re-designated as non-independent directors or in exceptional circumstances; the shareholders may decide that an independent director can remain in that capacity after serving a cumulative term of nine years. The board should provide strong justification to the shareholders in such exceptional circumstances.

The calculation of the tenure starts from the time the individual is first appointed as an independent director of a company. Listed companies should seek shareholders’ approval at the nearest AGM before the director reaches the nine year term limit. Shareholders’ approval should be sought annually after the nine year term limit. Rotation of independent directors within a group of companies is not advisable.

Failure to seek shareholders’ approval for the extension of the tenure of any independent director prior to the nine year term limit must be explained in the annual report.
Separation of Chairman and CEO
The positions of Chairman and CEO should be held by different individuals and the chairman must be a non-executive member of the board. Where the Chairman is not an independent director, the board should comprise a majority of independent directors.

The term ‘Chairman’ refers to the Chairman of the Board of Directors while the ‘CEO’ refers to the Chief Executive of the company, whatever name called, who may or may not be a member of the board. The responsibilities of the Chairman should include leading the board in the oversight of management, while the CEO focuses on the business day-to-day management of the company and this division should be clearly defined in the board charter. Listed companies that do not comply with any of the recommendations of MCCG 2012, including the separation of positions of chairman and CEO, must explain their circumstances and reasons or justifications for doing so in their annual report.
Commitment of directors
The board is required to set out expectations on time commitment for its members and protocols for accepting new directorships. Directors should notify the chairman before accepting any new directorship. Such notification should include an indication of time commitment expected of the new appointment. The Nominating Committee should take cognisance of such new appointment in its annual assessment of directors.
Remuneration of directors
The board should establish formal and transparent remuneration policies and procedures to attract and retain directors. A Remuneration Committee can perform this function.
Risk management framework and internal controls system
The board is required to establish a sound framework to determine the company’s level of risk tolerance and actively identify, assess and monitor key business risks.
Integrity of financial reporting
The Audit Committee should ensure financial statements comply with applicable financial reporting standards and assess the suitability and independence of external auditors. These recommendations are in addition to the requirements of an Audit Committee under the Listing Requirements.
Relationship between company and shareholders
The board should encourage shareholder participation at general meetings and voting on resolutions by way of poll. The chairman should inform shareholders of their rights to demand a poll vote at the commencement of a general meeting.

The board is encouraged to put substantive resolutions to vote by poll and make an announcement of the detailed results showing the number of votes cast for and against each resolution.

Substantive resolutions are those which are not procedural and administrative in nature; for example, the appointment of directors and auditors, approval for issuance of shares, share buy-backs, related party transactions and resolutions that are tabled by way of supplementary circular to shareholders
Where can I obtain a copy of the MCCG 2012?
The MCCG 2012 can be downloaded from here or a copy can be purchased from Professional Education and Services, Securities Industry Development Centre, Ground Floor, Securities Commission Malaysia.

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