Keynote Address
YBhg Tan Sri Zarinah Anwar
Chairman, Securities Commission Malaysia
3 May 2011
Corporate Directors Conference 2011
Malaysian Alliance of Corporate Directors

Y. Bhg Dato Jaffar Indot, President MACD
Y.A. Bhg Tun Hanif Omar
Members of the Board of Advisers MACD
Distinguished speakers

Ladies and gentlemen,



I would like to thank the organisers for inviting me to deliver the keynote address at this inaugural Corporate Directors Conference. I am delighted to be here this morning and would like to congratulate the Malaysian Alliance of Corporate Directors for their efforts. It is a timely reminder of the need for vigilance in corporate stewardship at a time of fragile growth as the world struggles to recover from the devastating impact of the global financial crisis.


Persistent downside risks threaten to derail progress of recovery. Rising inflationary pressures due to higher than expected increases in commodity prices, strong demand and supply disruptions that have pushed oil prices to recent highs, escalating geopolitical tensions in the Middle East, the ongoing sovereign debt crisis in the Euro zone and recent events in Japan all represent threats to growth.

3. It is therefore heartening to note that regional growth has proven to be more robust, with developing Asia expected to grow at 8.4% in 2011 and Malaysia expected to register growth of between 5-6%.
The transformation has begun

This positive growth projection is supported by efforts to transform the structure and performance of Malaysia’s economy through the implementation of recommendations under the 10th Malaysia Plan, the New Economic Model (NEM) and the Economic Transformation Program (ETP). The reforms initiated will facilitate high levels of growth, raise income and create a high value economy that will see capital used to stimulate innovation, enhance productivity and strengthen Malaysia’s ability to compete more aggressively in changing economic circumstances. Boards of directors of corporate Malaysia will certainly need to rise to the challenge of meeting these new and demanding expectations.

5. The Malaysian capital market is also expected to have significant growth prospects. Over the last decade, the size of the capital market grew from RM717 billion to RM2 trillion, a compounded growth rate of 11% per annum, outpacing the rate of economic growth. The Capital Market Masterplan 2 which was launched recently, estimates that the size of the capital market will double from RM2.0 trillion in 2010 to RM4.5trillion by 2020. In addition, the structural reforms and high impact investment projects under the New Economic Model and Economic Transformation Programme can accelerate this growth momentum with a significant impact on the upside for the long-term growth of the capital market.

However, amidst the growth prospects, we need to be mindful that the challenge remains for us to ensure resilience in our capital market in order to achieve sustainable growth. Thus the CMP2 is predicated on the fundamental precepts of Growth with Governance. Past financial crises have shown us that growth is not sustainable unless it is underpinned by high standards of integrity, governance and accountability; and that the pursuit of profits must be underscored by a strong sense of responsibility on the part of all who offer their products and services to the investing public.

Ladies and gentlemen

The role of boards and directors


Today, there are close to 1000 listed companies on Bursa Malaysia, at the helm of which, are the boards of directors who must commit themselves to the integral role of stewardship, and subscribe to the principles of accountability, transparency and integrity in executing the business strategies of the company, monitoring its overall performance, sustaining long term shareholder value and protecting the long-term interests of all stakeholders.


As the pace of technological development accelerates rendering more complexities into the business environment, the role of the board has admittedly become more onerous. Today, boards of companies have a role that has become more multifaceted and more multi-dimensional, both explicit and implicit. Their role today is delineated over many dimensions. They have to oversee compliance, manage risks, handle failed strategies, develop investor relations, deal with activist stakeholders, evaluate CEO’s performance and plan for senior management succession. These are onerous demands on the board in fulfilling its overall responsibilities of stewardship and oversight of management to ensure the organisation’s safety and soundness.


In some instances boards may also have to deal with a dominant CEO or Chairman. Such an environment calls for the board to diffuse the dominance through vigorous challenge processes. The board and its individual directors must be ready to raise questions, voice disagreements and seek answers and justifications on board issues.

10. Admittedly, dealing with what Warren Buffet calls the “boardroom atmosphere” is far from easy. According to him, it is this, and not inadequate laws, that makes intelligent and decent directors fail so miserably. In a board room of well mannered people, he says, it is awkward to raise the question of whether the CEO should be replaced, or to query a proposed acquisition that the CEO and his management team have endorsed, especially when they too are in the room. Too often directors prefer to remain silent and allow collegiality to triumph over independence. Sadly, he himself recently discovered this to his detriment.
11. But sometimes the lack of challenge at board meetings may be due to the lack of knowledge of the business being discussed. I think it is critical that members of the board have adequate knowledge of the industry that the company is involved in, so that they can question and challenge recommendations being put forward for their consideration, as well as why potential alternatives have been rejected. Knowledge of the industry will give them an understanding of what can go wrong and what measures need to be put in place to prevent problems from arising. Indeed it can prevent a company from being destroyed by competition or by the mere effluxion of time.

A study carried out by the SC and Bursa recently, demonstrated that the failure of a number of listed companies had been attributable to the weakness of their business models, most of which were outdated and were not able to survive the changing market and economic conditions. The lack of industry knowledge and expertise, absence of business savvy and simple complacency amongst others, had allowed such outdated business models to remain unchallenged, ignoring the need to anticipate risks and reshape direction, leading ultimately to the demise of the companies and losses to shareholders, many of whom had invested their life savings and retirement monies on the promise of long term profitability made when the companies were first listed. This is certainly not a desirable outcome for companies coming to the market to raise funds from the public.

13. It is imperative therefore that, amongst other things, Boards take steps to ensure that amongst their members there is sufficient representation from those with industry knowledge, experience and expertise to help formulate effective strategies, anticipate and ensure appropriate management of the risks to the business and its operations, understand and deal with competitive pressures, and be able to question and challenge the CEO and the management team on proposals and recommendations made to them. It is only when boards have the requisite knowledge and experience that they will have the credibility and understanding to question management about the critical issues that affect the company and its business. Arthur Levitt, a former CEO of the US SEC observed that there are “too many boards that are reactive instead of proactive; and too many boards who never rejected an easy answer and never pursued a tough question”.
14. An effective way of improving board performance is to undertake assessment. Assessment will educate the board and its members, and reinforce their understanding, of the nature of their roles and accountability. It will enable the board to evaluate its performance and develop itself to meet the needs of the company in an increasingly complex, competitive and international marketplace. Commitment on the part of the board to conduct board assessments reflects the openness of the board to receive constructive feedback and to seek performance improvement. Through assessment, boards can benchmark their performance, as well as review an individual director’s competence, application of skills, knowledge and experience to strategic issues and oversight, as well as the board’s collective effectiveness in performing a wide spectrum of duties. The outcome of evaluation can help identify weaknesses for which training may be required, fill in gaps in expertise and experience where additional recruitment may be necessary, and implement changes to meeting format or committee structure that will enhance the effectiveness of the board’s performance. In this regard, I urge all boards of PLCs to initiate steps to evaluate their performance, where they have not already done so.
15. At the end of the day, it is critical that there is adequate preparedness for the Boards’ deliberations. The board needs to facilitate an environment for open and honest discussion, develop the ability to listen, encourage effective communication and contribution from all directors as well as management, to ensure an effective partnership with the CEO and his team in achieving the company’s vision and in ensuring healthy governance practices.

Ladies and gentlemen

The individual director

16. I have alluded to the role of individual directors when touching on the issue of skills and expertise. Indeed we must recognise that board performance is a reflection of the performance of individual members that constitute the board. The individual effectiveness of each director in playing his or her role will collectively lend to the overall effectiveness of the performance of the board. It is important that individual directors are mindful of the collegiality referred to earlier, and be aware of the propensity for groupthink that can result in decisions being made without a critical evaluation of alternative ideas and perspectives. Taking cognisance of this, directors should actively ensure that they maintain originality and independence of thought, interpretation of situations and the opinions they hold and have the courage to speak out.
17 It is the juxtaposition of different perspectives and thought processes that must be the mainstay of board dynamics and performance. And it is the openness of dialogue that can result in board wisdom and meaningful output. It is important however that board deliberations should not be a mere augmentation of individual perspectives but a process of challenge resulting from positive dynamics of interaction within the board. Ultimately, at the end of a board meeting, directors must be able to combine constructively their opinions, and function as one board in an exercise of collective judgement and wisdom.

Ladies and gentlemen

18. It would have been obvious from what I have said, that high performance by a board and the value it brings lie in the mix and diversity of its members. Numerous studies and surveys have shown that there is a compelling business case for board diversity. A diverse board that is reflective of the business environment, the industry to which the company belongs, and the stakeholders it serves is more likely to be responsive to externalities, stakeholder expectations, changes in economic conditions and therefore are better able to enrich the process of strategy setting, anticipate risks and steer the company in the desired direction. Thus selection of board members must be based on merit and with due consideration given to the benefits of diversity, including gender diversity. In this regard, there is an urgent need to give serious attention to improving the participation of women on the boards of Malaysian PLCs. Today women make up only 7.5% of the total number of directors on boards, while study after study has proven that the presence of women on boards contribute to significant improvements in performance. Recent studies such as the Eversheds Board Report 2010, and the McKinsey & Company set of reports on women participation, have found that better performing companies tended to have a higher percentage of female directors.
19. One must acknowledge though that this is not an insignificant challenge. There is definitely a need to address the supply side to procure diversity (in all its forms, not just gender) through an organized effort by identifying a pool of qualified, experienced and respected individuals, both women and men, who are suitable to be appointed as directors. Thus it is heartening to note that the MACD is launching a Directors Registry that will address the acute shortage of suitably qualified candidates who can potentially be appointed as directors on the boards of our PLCs. This is indeed a timely development.
20. The registry should be a database that is comprehensive, rich with relevant information on candidates for potential directorship, and act as a means for suitably qualified candidates to be discovered. The registry must maintain high levels of integrity and quality, to engender industry confidence. Therefore there must be objective entry criteria, with a robust system of checking put in place.

Ladies and gentlemen


The board of directors is the backbone of the company. They must be able to be relied upon to provide overall leadership, especially in setting the corporate governance agenda of the company, and in ensuring that the highest standards of governance prevail. It is therefore continuing cause for concern that we continue to uncover corporate transgressions that have a deleterious effect on investor confidence and the integrity of the market. A culture of good governance can only take root if the board demonstrates commitment and conviction and takes the necessary steps to encourage and embed ethical practices across the company, and shows no tolerance for dishonest conduct.

22. It is a fact that today, good corporate governance is a key investment criterion. Thus the ability of companies to demonstrate a track record of good governance is fundamental to its ability to attract the interest of quality, strategic, long term investors. Increasing empirical evidence show that better governance results in better shareholder value. Good governance demonstrates not just accountability to shareholders and other stakeholders, but is also an indication of the company’s business performance. It is not surprising therefore that investors pay acute attention to a company’s corporate governance practices when making investment decisions and Boards must take cognizance of this.
23. Investors must also be able to rely on the board, as a mechanism of governance, to reduce the agency costs associated with the separation of ownership and control. Therefore boards have a significant role to play in generating confidence and the trust of investors who must be able to rely on the independence, strength and commitment of the board to genuinely promote and practice the key tenets and best practices of governance that will ultimately be translated into better business performance and shareholder value.

Taking on sustainability

Ladies and gentlemen,

24. Finally, it behooves us to remember that although generating financial returns is one of the key goals of a company, as a company is after all a profit making entity, the profit must be generated responsibly. Companies today cannot count on a long lifespan if all it concentrates on is its financial bottom line. Investors are increasingly “raising the bar” on entrepreneurial behavior and corporate accountability, and placing greater focus on long term sustainable value creation. Therefore the core elements of the sustainability agenda must increasingly make their way into the agenda of all PLC boards as we enter the new decade. Sustainability is about giving business a future, and it must surely be in the best interest of all stakeholders for the company to have long term sustainable prosperity instead of short lived successes. Boards must therefore consider the long-term impact of short term decisions they take on the sustainability of the business, as they may risk losing their licence to operate.
The next decade

Ladies and gentlemen,

25. As regulators, the capital market that we aspire to build for Malaysia is one that is distinguished by the quality of its governance. But this is a shared responsibility, with all market participants having an integral role to play. To play this role well, there is a need for continuous upgrading of skills and competence to meet the changing needs of stakeholders, and the complexities of business and its associated risks.
26. I am very pleased therefore that the MACD has taken the initiative to organize this conference. Directors have an obligation to regularly update themselves on their changing roles and responsibilities, as well as the skills and competence required to enable them to be effective in their stewardship and oversight role. Furthermore, as the pace of liberalization heightens, new competition will emerge that will require our companies to strengthen their ability to remain profitable.As domestic companies increasingly venture abroad to take advantage of new business opportunities, as indeed they must, there will be an expectation on their boards and management to be able to deal with different and new business environment and standards of conduct. Conferences such as this, with expert faculty members coming from all over the world, is therefore an important part of the continuing learning process.
27. I wish all of you a very productive conference.Thank you.