Keynote address
YBhg Datin Zarinah Anwar
Deputy Chief Executive, Securities Commission

Leadership in Corporations

Corporate Update 2004 for Directors and Company Secretaries
12 – 13 July 2004

The Honourable Minister of Domestic Trade and Consumer Affairs, The President of MAICSA, Honoured guests, ladies & gentlemen. Assalamualaikum w.b.t and a very good morning.

1. I would like to thank MAICSA for this opportunity to share my views on leadership in corporations at this important event. The SC and the Institute have a significant history of collaboration on many issues, not least in relation to the corporate governance reform work of the High Level Finance Committee on Corporate Governance in the past, and now in relation to the implementation of the CMP. We of course value this relationship and continue to look forward to working closely with MAICSA.
2. So much has been written and said about leadership and I cannot and will not take you through the sheer volume of books, articles and papers on this topic. Instead, I would like to share my thoughts on the challenges of leadership in corporations, from the perspective of a market regulator.
The context – an orientation towards change
3. Post-crisis corporate Asia has seen radical changes not only from the regulatory sense, but also from the institutional and cultural context. Under the pressure of continuing liberalization, the focus has been on developing foresight, consolidating strengths, addressing weaknesses and in generally achieving greater efficiencies in business processes. These changes are also evident in Malaysia. In GLCs, there has been an infusion of new blood and fresh ideas. Over everything, there is the pervading sense of urgency, and the recognition that the capacity for innovation has become the sine qua non of corporate continuity.
4. It is said that in times of great change, corporations can do one of three things, and these are:

1. to watch as things happen;
2. to wonder what happened; or
3. to be proactive and make things happen.
Good leaders, it is said, make the right things happen, at the right time – and as a regulator I’d like to add that they do so in the right way.
Vision, values and the power to inspire – the traits of a good leader
5. While there is no common template for leadership, effective or good leadership has a number of attributes.
First, vision – and the capacity to communicate that vision;
Second, the ability to motivate and inspire others; and
Third, the right set of values and principles.
6. Interestingly, a survey of business executives by the Far Eastern Economic Review immediately prior to the Asian Financial Crisis overwhelmingly agreed that ‘connections were more important than strategy for a company to succeed’1. How times have changed. The fashionable view now is that the old economy Asian model of ‘self-help in the face of adversity’, backed by state paternalism will only take us so far in the face of global markets and open competition, and in itself can engender inefficiencies and give rise to the potential for unchecked risk taking.
7. So what is the essence of vision and strategy and what does it entail? I think of vision as simply focused creative direction at the top. Focus provides boards with the ability to concentrate on big ticket issues which impact performance in the long term and not waylay resources on every minor and insignificant opportunity that comes along. Creativity refers to the ability to generate novel and innovative strategies to achieve long term goals.
8. But companies must not only know where they are headed, they must also be transparent about it – in other words, vision needs to be communicated.
9. It has been suggested that an important trait of a good leader is that he or she ‘communicates obsessively’ 2 and this applies both at the internal and at the external levels. To stakeholders, whether they are employees or shareholders, good communication generates trust and engenders commitment. Shareholders in particular demand a high quality of disclosure and the failure to communicate material changes in policy or direction not only constitutes a breach of the continuous disclosure requirements of the exchange, but can also have a devastating impact on the value of a corporation’s shares.
10. The second trait I want to highlight is a function of leadership closely related to the capacity to communicate vision. This is the ability to motivate and inspire others. The power to inspire others within the organization is not merely a means to an end – i.e., about getting people to do the things you want them to. When leaders create an organizational tone that inspires and encourages passion about work, they meet what I think is a fundamental function of work in society – namely the role of work as a source of creative human fulfillment in the sense intended by the 18th century libertarian philosopher Humboldt .
11. Moving on, one of the more important aspects of the makeup of a good leader, is character. Character at the top sets the tone of the character in the entire organization. Clearly, the values, principles and standards which make up good corporate governance and engender corporate social responsibility, begin at the top and flow downwards. In fact, the ethical values which provide the foundations for good corporate governance – namely fairness, accountability, responsibility and trust – are intrinsically character values for leaders and in turn the corporation.
12. Corporate governance literature is, overwhelmingly, built up around the agency theory, and corollarily, on rule systems and structures to reduce the probability of expropriation and abuse by directors and managers for personal benefit and the expense of the corporation. Let me simply suggest that the ethical values which provide the foundations for good corporate governance – namely fairness, accountability, responsibility and trust – are intrinsically character values for leaders which become writ large for the corporation. Where leaders, and by extension, corporations are unable to simply behave themselves, regulators have historically tended to compensate with the introduction of stronger laws – it is in their nature to do so. This is true of the Maxwell scandal in the UK, Enron in the US, the collapse of HIH in Australia – and of course Asian economies in the Asian crisis – all of which have in some form or other resulted in greater intervention by the regulatory framework into the affairs of corporate management and conduct than ever before.
Regulators and the regulatory environment
13. And so, what is the role of a regulator in this new paradigm of leadership and how does a regulator foster leadership?
14. Very simply, good corporate leadership requires the entire range of supporting organizational structures and processes to sustain it and make it work. The role of regulators in this context is to administer and if necessary develop or facilitate the development of, the legal and institutional structures which provide the framework under which corporate leaders and the corporate sector in general function and thrive. In short, an important job of regulators is to provide corporate leaders with the tools they need to achieve the ideals of good corporate governance. And conversely, in imposing minimum standards of corporate governance, regulators have also sought to set the pace for what is expected of corporate leaders.
15. Malaysia has of course adopted a long term and strategic approach towards corporate governance reform. The Finance Committee Report on Corporate Governance and the Capital Market Masterplan collectively provide us with a comprehensive blueprint for corporate governance reform agenda over the period of the next 10 years. Essentially, the approach has been to effect legal reform alongside the introduction of voluntary codes, facilitating investor education and training, and inculcating shareholder activism. While often these changes have been seen as rules and more rules from the regulator, they also provide the very important enabling environment for effective leadership in corporations.
16. Allow me to highlight some of the important initiatives or reforms taken in implementing these proposals which have significant impact on leadership in corporations.
17. As you know, one of the milestones in the implementation of the recommendations of the Finance Committee Report on Corporate Governance was the release of the Malaysian Code on Corporate Governance in 2000. Also in 2000, amendments to the law effectively delineated and streamlined the responsibilities of the Securities Commission and the then existing Registrar of Companies with regards to prospectuses, resulting in greater legal and regulatory certainty in the area of public offerings of securities. This was followed by the revamp of the Listing Requirements in 2001 which enhanced standards of corporate governance by strengthening board-level and shareholder-level controls on the conduct of listed entities. In January this year, amendments to securities laws were introduced to protect senior company officers such as the chief executive, internal auditor, company secretary from discrimination or job termination in cases involving the whistle blowing of breaches of securities law.
18. We have also sought to ensure that directors are equipped with the tools of knowledge that they need in relation to understanding their fiduciary duties and responsibilities – and as you know this is achieved through the mandatory accreditation of directors implemented by the exchange. But beyond that MAICSA, MICG, and professional bodies have been proactive in supporting and complementing these training and education efforts – and this conference is an example of such an effort.
19. From the Malaysian Code of Corporate Governance, to the Institute of Internal Auditors (IIA) Guides on the Directors’ Statement on Internal Control and on Internal Audit, industry working hand in hand with regulators, have issued codes of conduct which play major roles in providing the framework for making sound leadership work. Pursuant to the recommendations of the Finance Committee Report on Corporate Governance, MAICSA has also issued its Best Practice Guides on the Conduct of AGMs and its Toolkit guide for Company Secretaries, both of which are important contributions and I encourage MAICSA not to stop with what it has achieved, but to continue with this effort.
20. I have mentioned that around the world, in developing and developed countries alike, there have been evidence of greater regulatory inflation, which correlates directly to the need to regulate the externalities of poor character and misconduct by directors and management.
21. Regulators have to heed the fine tension between imposing regulatory control and encouraging market innovation. Too great an emphasis on control would add to the cost of doing business and stifle innovation, thus engendering risk averse leaders and corporations. Walking this line requires close collaboration and constant consultation between regulators and industry.
22. In Malaysia, it is fundamentally believed that the appropriate mix between self-regulation by the market and regulatory discipline by the regulators is essential in the development of a strong and effective framework for corporate governance. The stronger the ability of the market to self-regulate, the lesser the extent of intervention necessary from regulators and the better for businesses to thrive. The ideal end game is an environment where corporate leaders and industry themselves become the main drivers for better corporate governance.
23. From the perspective of the inculcation of sound leadership through governance reform, I am proud to observe that corporate Malaysia has come a long way. To a large extent, regulators have set the pace for reform thus far. Going forward, let me suggest that industry needs to now take on the baton from the regulators. In the drive for improving corporate governance, corporate leaders rather than regulators must ultimately be the pace-setters.
24. I wish you a fruitful and fulfilling time at this seminar.

Thank you.


Cited in Hamlin, The New Asian Corporation: Managing For the Future in Post-Crisis Asia (2000), at p 155.
2 Kotter John P, ‘What Effective General Managers Really Do’, Harvard Business Review, March-April, (1999), at p158.