Keynote Address by
Y Bhg Tan Sri Zarinah Anwar
Chairman, Securities Commission Malaysia
SC-Bursa Corporate Governance Week 2011
at the
Bursa Malaysia, Exchange Square, Kuala Lumpur
Wednesday, 30 November 2011

Sustainability: Taking Corporate Governance a Step Further

Y. A. Bhg Tun Mohamed Dzaiddin Hj Abdullah, Chairman Bursa Malaysia

Y. Bhg. Dato’ Tajuddin Atan, CEO Bursa Malaysia

Distinguished guests

Ladies& gentlemen

Good afternoon


I am very pleased to be here this afternoon at the 3rd SC-Bursa Corporate Governance Week. The CG week has been the platform for both the SC and Bursa to discuss emerging issues, showcase new developments and provoke thought leadership in the area of corporate governance. I am particularly pleased that the CG week has over the years matured in breadth and depth, and addresses issues of regional and global significance.


The success of events such as the CG week is dependent on the support and interests of like-minded participants who not only engage in meaningful dialogue and discussion, but who are also genuinely committed to the overall CG agenda. In this regard, I would like to thank all speakers and participants for graciously taking time off from your busy schedules and for accepting our invitation to share your thoughts and views at this event.


Although more than three years have passed since the start of the global financial crisis, there remains little indication of a more enduring exit. The structural headwinds to growth in advanced economies still remain and financial markets continue to be challenged. Asia and ASEAN have not been isolated from the spillover effects of the current economic uncertainty and the associated risks of integration of our markets with the global financial system.

Global Financial Crisis and Corporate Governance

Ladies and gentlemen


The global financial crisis amply demonstrated the consequences of the disconnect between governance and strategy on the long term sustainability of business. The report of the OECD Steering Group on Corporate Governance in 2009, attributed the crisis to a large extent to failures and weaknesses in governance arrangements which had failed to serve the purpose of safeguarding against excessive risk taking by financial institutions.1


The Board responsibility for risk management had not been discharged adequately, made worse by incentive systems that encouraged and rewarded high levels of risk taking. In certain cases, boards had approved the strategy but failed to establish appropriate measures by which to monitor implementation. The zealous pursuit of profits by financial intermediaries in order to maximise gains for themselves led to the failure in the application of the spirit of well founded principles and best practices of governance.


But, I believe, a positive outcome from the crisis is the realisation that followed, of the need to review corporate governance standards especially in terms of shortcomings in risk management practices and incentive structures as well as the responsibility of boards for oversight, and where such responsibility might have failed. Indeed there has been renewed appreciation that governance and sustainability are inextricably linked. A new vision for business is emerging – one where a set of core values, encompassing environmental, social and governance issues as well as accountability towards shareholders and other stakeholders assumes greater importance.

The theme of our CG Week this year – “Sustainability: Taking Corporate Governance a Step Further” is therefore timely and appropriate.

CMP2 & the CG Blueprint


For the Malaysian capital market, this theme follows through from the theme of our 2nd Capital Market Masterplan (CMP2), and the Corporate Governance Blueprint both of which were launched earlier this year. The theme of CMP2, “Growth with Governance” amplifies our concern for ensuring the existence of appropriate responses to address issues with regard to the efficacy of markets in the aftermath of the global financial crisis while facilitating the expansion of the role of the capital market in driving growth and innovation. One of the main strategies of the CMP2 is therefore aimed at further raising corporate governance standards and broadening stakeholder participation in governance via the introduction of the CG Blueprint.


The CG Blueprint which sets out the policies and strategic direction of our new CG agenda contains a total of 35 recommendations which will be implemented over a five-year period. The recommendations which will be implemented through a new CG Code and changes to the Listing Requirements will be effected in early 2012.


The Blueprint represents much more than a document of mere legal prescriptions. The major thrust of the Blueprint is the development and promotion of a culture of good corporate governance, addressing the key components of the corporate governance ecosystem to strengthen self and market discipline. Moving forward, we must make every effort to steer away from the normative tendency to regard corporate governance as a matter of compliance with rules, to one that more fittingly captures the essence of good corporate governance; namely a deepening of the relationship of trust among companies, stakeholders and regulators.


Navigating and balancing the interests of numerous stakeholders is challenging but essential to enhancing investor confidence and public trust. The intense debate on corporate governance standards and increased scrutiny of business have already led to changes in corporate culture and philosophy. The most fundamental of these changes has been the growing recognition that shareholder value can only be sustained where there is well-informed strategic direction and engaged oversight that stretches beyond short-term financial performance.


As we move forward we must therefore redefine corporate governance with practices that prepare companies to more comprehensively address risks, by anticipating potentially adverse impacts on people and the environment and managing tangible and reputational risks. Such practices can also generate wealth through an increase in business opportunities and broader access to markets. As such businesses have to look beyond mere financial stewardship as the means of optimizing shareholder value.

New Dimensions to Board Governance


For companies today to operate successfully and sustain growth, the onus falls on boards to incorporate these new dimensions into their core decision making processes. Boards are responsible for ensuring that the companies they govern remain competitive by having in place a robust strategy that focuses on sustainable value creation. For this very reason our Blueprint recommends that boards formalise their policies on sustainability and stakeholder management, and to warrant accountability here, these policies must be disclosed to the public.


It is essential therefore that the boards themselves must first have a comprehensive understanding of their role and possess the necessary skills and competence to discharge their responsibilities effectively. In particular, issues such as the composition of boards, their ‘independence’ and integrity, and how they learn to continuously improve the governance of the company, influence the quality of their decisions and actions.


The week before last, I was invited to speak at a CEO roundtable in Europe, on the subject of corporate governance. It was extremely instructive to hear the Chairmen and CEOs of many top companies venture their views and experiences on what makes an effective Board. Speaking on having the right skills, one of the chairmen said that the board of his company (prior to him joining) had not questioned the rationale for what later turned out to be the wrong decision to diversify beyond the company’s traditional business.

Neither did the board have the context to ask the right questions. Another said effective challenge at boards can be impeded by an all too-powerful CEO who, in one company, had been 15 years in office and did not encourage question or debate


I don’t think these are unfamiliar issues in our context. It will therefore serve boards well to cultivate a culture and climate of robust and open dialogue and encourage members to speak up, challenge and ask questions before coming to a decision. The chairmen and CEOs also felt that it was important for board members to be familiar with each other and to have regular interaction with key executives. Another felt that a substantive on-boarding program for new board members is essential to enable directors to have a good understanding of the company’s business and how it operates. These are all practical guidance that can be applied here.


Thus our CG Blueprint also provides for a more diverse board that should have a wide range of skills, competence and experience to ensure diversity of inputs, expertise and perspectives in line with the direction and aspirations of the company. A balanced and diverse board can be achieved if there is sufficient focus on the recruitment and retention of the best people, including women. The Blueprint expresses a goal for women participation on boards to reach 30% by 2016. Allow me to add that demographic characteristics of boards, in particular gender, does make a difference.


In the aftermath of the crisis, a survey of directors concluded that buy-in to corporate governance is significantly more widespread amongst women compared to men. For example, 40% of women directors surveyed believed that enhanced risk management is necessary to prevent further crisis, while only 1% of men did. Furthermore, 64% of the women accepted their board appointments for the greater good of stakeholders2. Women directors were also found to be more attentive, attend more meetings and are more critical of board performance. It is not surprising therefore that studies have shown that companies with a critical mass of women leaders are likely to be well-governed. A balanced board and diverse corporate leadership made up of both capable men and women is important.


The CG Blueprint also proposes the establishment of a director’s registry as an important enabler to provide a pool of qualified candidates, including women, for directorship of boards. I am indeed encouraged by the efforts that have gone into creating this registry and I look forward to seeing it fufil its purpose of matching the needs of boards with candidates who meet the profiles that the boards require.


Given the central role of boards and some of the concerns surrounding boards, we have made a conscious effort in the CG Blueprint to address and contextualize the issues, challenges and gaps; for example recommending a cap on the tenure of independent directors, introducing annual “independence assessment” by the Nominating Committee, prescribing mandatory separation of the role of the chairman and the CEO, and for the Chairman to be a non-executive as well as mandating poll voting for related party transactions.


In addition, two public consultations are currently being undertaken to assess whether the chairman should be an independent director and whether we should mandate poll voting for all resolutions at general meetings.

Shareholders as Responsible Owners

Ladies & gentleman


Corporate governance is a shared responsibility and it is the obligation of all participants to exercise greater care and responsibility in promoting value creation and sustainability through mutually-reinforcing efforts. Be that as it may, one aspect often overlooked in the governance debate is that of the powers and responsibilities of ownership.


I believe that the sustainability of business is to a significant extent dependent on participatory governance on the part of all shareowners – retail and institutional alike. Globally, the concept of “responsible ownership” is gaining momentum, premised on the belief that it is not enough for investors to simply hold shares. They must also play an active role to promote good governance practices in companies by adopting a more long-term strategy to share ownership.


Not unique to Malaysia, shareholders in emerging markets tend to focus on short term gains and as a result, they are often passive. That being said, short termism is not limited to emerging markets, and is also observed in developed markets; arguably more pervasive. Owing to rapid advances in technology combined with competition among trading venues, timelines of investment decisions are far more compressed for example when high frequency and algorithmic trading strategies are employed to achieve short-term wealth creation through maximisation of stock market prices. This can lead to unintended consequences.


Short-term objectives can erode value, and faith in companies and businesses. There is a need for boards and managers to focus on the long term. The trend towards greater share ‘owner’ power as encapsulated in the Blueprint must be accompanied by greater investor and intermediary responsibility. Institutional investors wield substantial power that affects the investing public.

The maturing of the institutional investor community creates both opportunity and responsibility to promote the long-term health of companies and capital markets through investment policies that empower and encourage long-term value creation. Encouragingly, institutional investors in Malaysia have played a leading role in this regard. What would be helpful is for them to expand their investment appraisal to include governance analysis that will help identify better governed companies.

Regional Initiatives

Ladies & gentleman


Corporate Governance is a measured and patient process that must be relevant and appropriate to each country’s stage of development and culture. Against this background, I should now like to reflect on the role and the impact of corporate governance on sustainable development in the region.


The Asian corporate governance agenda has come a long way and has advanced significantly since the Asian Financial Crisis more than a decade ago. Given the major corporate governance failures which had exacerbated the crisis, corporate governance reforms became an important driver of change in the Asian economies.


Asian economies including Malaysia have since made determined efforts to continuously improve corporate governance standards and practices. Increasingly domestic reform efforts are now being supported and complemented by regional initiatives.


The establishment of the ASEAN Capital Markets Forum, a forum of securities regulators under the umbrella of the ASEAN Finance Ministers established in 2004 provides ASEAN capital market regulators with a platform to work towards capital market integration and the observance of harmonised standards within the region. Numerous initiatives are being pursued including one which is led by the SC Malaysia – ASEAN CG Scorecard and the CG Ranking of ASEAN PLCs.


This is a significant and challenging initiative encompassing international benchmarked practices and regional CG descriptors and methodologies.

Its objective is to raise CG standards and practices of ASEAN PLCs, and to showcase and enhance the visibility as well as investability of well governed ASEAN PLCs internationally as part of efforts to promote ASEAN as an asset class. We have advanced considerably in this initiative, having appointed the foremost proponents and experts in CG from the region to devise and assess the PLCs using the scorecard, securing the endorsement of the ACMF members, and having validated the methodology and criteria with the OECD.


For the pilot year, the ASEAN CG Scorecard will be used to rank the top 30 public listed companies (PLCs) in each of the participating countries, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. You will hear more on this tomorrow from the panel of regional CG experts who are instrumental in helping us establish the scorecard and ranking methodology.

Ladies & gentleman



Given the nexus between corporate governance and the increasing mobility of capital, corporate governance frameworks must be credible, well understood and adhere to internationally accepted principles. At the same time, it is also important that these practices and principles are contextualized to the operating and business environment as well as the level of maturity of the markets. This is what we have tried to do with the recommendations in our CG Blueprint which we expect will translate into effective corporate governance practices that will make our companies attractive investment propositions and enable the Malaysian capital market to be distinguished by its high standards of governance.


On that note I wish to thank Bursa Malaysia once again for co-organising this event with the SC. I am also deeply appreciative of the participation of many industry groups and professional bodies in the CG Week. Once more, I would like to thank the speakers and participants who have made time to be part this event. I am confident that the events organised throughout the GC Week will be a great platform to catalyse open discussions on the key issues relating to corporate governance.

Thank you for your attention.


The Corporate Governance Lessons from the Financial Crisis by Grant Kirkpatrick


Commissioned by Women Corporate Directors (WCD) and Heidrick& Struggles. The survey covered 398 directors of both private and public-listed companies across North America.