The reforms recommended by the Finance Committee Report and the CMP re-affirm and complement existing corporate governance enhancing structures. The recommendations build on the existing statutory and common law framework for corporate governance already in place, governing, inter alia, directors’ duties, shareholder rights and redress mechanisms, internal control structures and corporate transparency and disclosure.
Key characteristics of the framework which form the foundational basis for the recommended reforms are highlighted below –
- Company and securities law entrenches key corporate governance requirements – Principal requirements governing corporate governance practices, including corporate financial disclosure, directors duties and liabilities and shareholder rights have been entrenched both in company legislation and more broadly, in the common law (for example, the one-share-one-vote rule and requirements governing the duties and responsibilities of directors- including their duties over financial statements – have been incorporated in the Companies Act since 1965).
Securities law provides clear rules governing market manipulation, false and misleading disclosures, insider trading, compliance with the accounting standards prescribed by the Malaysian Accounting Standards Board as well as transparency of ownership. The last of these characteristics was achieved through amendments to securities legislation in 1998 to prohibit persons from hiding behind nominees through the introduction of the concept of an authorised nominee;
- Framework for corporate governance under the exchange listing requirements – The exchange listing requirements provided strong foundations for subsequent corporate governance reforms. In the area of corporate disclosure and transparency, this includes the existence of strong rules and clear structures governing periodic and continuous corporate disclosure. In the area of rules governing board composition and structures, regionally, the exchange has been recognized as an early adopter of key corporate governance enhancing mechanisms, including the early incorporation of rules governing independent directors (since 1987) and audit committees (since 1993); and
- Accounting standards and regulation – The Accountants’ Act provided for the registration of accountants and the establishment of the Malaysian Institute of Accountants in 1967 to facilitate the self-regulation of the accounting profession. The Financial Reporting Act established the Malaysian Accounting Standards Board in 1997, one of the first of such independent standard-setting bodies in Asia. MASB standards broadly reflect international accounting standards and are mandated by law, covering both listed and non-listed companies.