Speech by

YBhg Tan Sri Zarinah Anwar
Chairman, Securities Commission, Malaysia

at the

KPMG Shareholder Value Awards
21 August 2009
Sime Darby Convention Centre

Distinguished guests, ladies and gentlemen. 


It is heartening to know that the KPMG Shareholder Value Awards is in its eighth year running, and I am pleased to have been invited to be part of this annual programme to recognize achievements by Malaysian companies in creating value for their respective shareholders.  I would also like to commend KPMG for taking the initiative to recognize exemplary practices where companies continuously strive to achieve higher governance standards which would ultimately translate to value to shareholders.  

The evolution of shareholder value


The concept of shareholder value has established a foothold in many countries today as the demand for better governance and shareholders’ rights gain prominence. Shareholders’ expectations that their investment interests are safeguarded by the direction and management of companies in the face of a challenging and competitive business environment has further reinforced the emphasis on shareholder value.


Increasingly, companies which have traditionally focused on the strength of their financials alone will now need to shift towards adopting a holistic approach to wealth creation for their shareholders.  In other words, there is an increased awareness amongst companies that the essence of shareholder value boils down to being able to set long-term objectives and delivering them, rather than merely focusing on the short-term.  There must be greater emphasis on the ‘big picture’ in order to meet the demands of the investment community and to sustain investor support.

Lessons from the crisis


The global financial crisis, which emanated from the US has shaken and caused the upheaval of whole financial markets and institutions across continents.  This clearly demonstrates the close and interlinked relationship between markets and players in different countries with greater contagion risks being present.  There are important lessons on governance and stewardship that can be learnt from the crisis.  Although numerous factors have been blamed for it, it cannot be denied that poor corporate leadership is probably one of the most important factors that had led to the downfall of several prominent institutions.


As a result, directors’ conduct have come under close scrutiny by governments, regulators and investors, and all aspects of governance are being closely examined. Recent events have indicated that constant vigilance is required in order for confidence and integrity to be maintained in the capital markets. This includes the critical need for boards of directors to possess the right expertise, exercise ethical conduct and promote good corporate stewardship so that companies can meet their responsibility to deliver value to shareholders. 


One subject that has been extensively looked at as a result of the current crisis is compensation structures for senior management. Inevitably these were seen to be tied to short-term performance objectives, thus creating a perverse incentive structure for short-term risk taking to generate higher revenues and profits, without due regard to the longer-term risks and sustainability of profits to justify the risk.  The golden handshakes granted to top executives in loss-making financial institutions further highlighted the deep-rooted error of encouraging immediate gratification in place of long-term continuous growth.


Accordingly, companies should review how their compensation packages are structured to ensure performance is tied to long-term objectives,  so that management of companies do not indulge in excessive risk-taking in the short-term to record good performance now at the expense of long-term creation of value for shareholders.  

Capital market revamp

Ladies and gentlemen.


August 3rd, 2009 marked a significant milestone in the development of the market for fund-raising in Malaysia when the Unified Board and the ACE Market were launched.  The new framework is expected to enhance the attractiveness of Bursa Malaysia as a listing destination.  While we strive to enhance the competitiveness and efficiency of the Malaysian equity market, the quality of companies operating in our market remains our priority. 


In tandem with the more efficient fund-raising framework, good corporate governance practices and emphasis on shareholder value creation must continue to be at the top of the agenda for all companies.  Companies must instill only the highest standards of corporate governance to maintain the trust and confidence of investors. Investors will naturally be enticed to place their hard-earned savings with companies that they trust will act honestly to deliver positive shareholder value.  This underpins a key dimension of the new fund-raising framework that we hope will lead to better quality companies being listed on Bursa.


However, as has been said time and again, having in place good corporate governance structures on paper is simply not enough.  A good corporate governance culture must emanate top-down and compliance must be in substance.  Whilst recognition for adhering to the highest standards of corporate governance can be embodied by the winning of an award, it is essential that the recognition is rendered meaningful, with continued and sustained efforts to ensure the embedding of a culture of good governance that permeates throughout the organization, with the CEO and the board setting the tone at the top.  


With the introduction of the new fund-raising framework, market integrity must continue to be intact, with fair and transparent disclosures so that every investor has equal access to information that is meaningful and timely, enabling investors to invest with confidence.  Having said that, the crux is to have quality disclosures and not just voluminous disclosures, again simply to comply with the letter of the law. 


Quality disclosure is like lifting a fog of uncertainty as investors will have access to information that is clear, accurate and complete, to be better informed on a company’s future plans and how these plans will affect the wealth of its shareholders.  The information disseminated should provide additional value to allow meaningful assessment of the company based on expected future financial performance.  Successful companies articulate long-term strategies and at the same time set short-term milestone targets aligned to the longer-term direction, and relay these to shareholders coherently and clearly. For PLCs it is vital that board and management of companies provide all pertinent information to the market, and that the market believes and has confidence in such information.


Ladies and gentlemen.


Delivering shareholder value is key to achieving success in today’s markets where competition for capital is intense. The global nature of capital markets means that capital can easily migrate to higher yielding, often foreign opportunities. Greater attention must therefore be focused on managing, measuring and reporting the creation of value to shareholders. In Malaysia, we have seen companies that have successfully achieved excellent results in this regard. And, these companies and their efforts have been highlighted in the previous installations of the KPMG Shareholder Value Awards.  While we gather here once again to recognize the achievements of those who have done well, I urge all other companies to take the cue to do the same. 

Confidence in the Malaysian capital market can only prevail and investors attracted to invest their monies, if our companies take their responsibility to investors seriously, and create and enhance, instead of dissipate and destroy value.  Shareholders take a risk when they invest in companies; thus if they, as suppliers of capital, do not receive a fair return for the risk they are taking, they will withdraw their capital and look for better returns elsewhere.  It is essential therefore that all companies understand and appreciate the critical role that they play in building investor confidence and in ensuring that the Malaysian capital market remains competitive. 

On that note, let me congratulate all the winners for this year’s awards and wish you continued success.

Thank you for your attention.