YBhg Dato’ Zarinah Anwar
Chairman, Securities Commission
Launch of Malaysia’s Corporate Governance – Report on the Observance of Standards and Codes (ROSC)
Friday, 12 January 2007
Yang Berhormat Tan Sri Nor Mohamed Yakcop, Minister of Finance II Malaysia,
Mr Ian Porter, the World Bank Country Director for Malaysia,
Ladies and Gentlemen,
A very good morning to all. Welcome to the Securities Commission and to our foreign guests, welcome to Malaysia.
The SC is honoured to be co-hosting with the World Bank, the launch of the World Bank’s Report on the Observance of Standards and Codes on Corporate Governance or CG-ROSC for Malaysia. I wish to thank the Honourable Minister of Finance II for his presence this morning and for agreeing to deliver the Keynote Address and officially launch the Report.
I would also like to put on record our appreciation to the World Bank, not only for co-hosting today’s event, but also for our collaboration on the Report. We believe this to be a key milestone in our journey towards enhancing corporate governance in Malaysia.
The ROSC initiative involves voluntary assessment of a country’s regulatory framework and business practices against an internationally accepted benchmark, of which corporate governance is one of 12. For corporate governance, that benchmark is the OECD Principles of Corporate Governance, and the assessor, the World Bank. The objective of the initiative is to identify challenges and weaknesses in our corporate governance framework which may contribute to Malaysia’s economic and financial vulnerability.
That vulnerability was aptly demonstrated during the Asian Financial Crisis when pressures on the ringgit and the stock exchange exposed latent corporate governance weaknesses in the corporate sector. Although our corporate governance journey certainly did not start with the crisis – since we had an existing legislative, common law and regulatory framework governing companies and which featured requirements for audit committees and quarterly reporting – the crisis certainly galvanised governments, regulators, corporates, NGOs and the media to place corporate governance in the public spotlight and precipitated widespread reform.
The High Level Finance Committee on Corporate Governance which released its Report in 1999, made wide-ranging recommendations on improving corporate governance, both regulatory and institutional.
The Securities Commission, together with other governmental and regulatory agencies, front-line regulators such Bursa Malaysia and industry associations, worked very hard on rolling out the reform agenda. The result was a set of new laws, rules and regulations, introduction of new institutional mechanisms for market activism and regulatory enforcement, as well as capacity building, through training and education. We believe that the comprehensiveness of that reform effort was certainly unprecedented at that time.
The first CG ROSC on Malaysia was completed in 2001 very shortly after the release of the recommendations of the High Level Finance Committee, and the Capital Market Masterplan. Although the reform efforts were already well on their way, it was much too early then for them to bear significant impact on our corporate and economic landscape.
Since the first CG ROSC, Malaysia has introduced a Code of Corporate Governance, strengthened disclosure rules and introduced corporate whistleblower protections. The Minority Shareholders Watchdog Group plays public advocate for minority investors. Industry associations and self-regulatory organisations have voluntarily established best practice codes on corporate disclosure, internal audit, internal controls and the conduct of general meetings. The government’s transformation programme for government linked companies (GLCs) kicked-off with the Green Book on GLC governance. The National Integrity Plan, the Corporate Law Reform Programme, tripartite arrangements for enhanced enforcement of corporate governance breaches are but a few of the other key achievements worthy of mention.
It was within this context, that we, at the Securities Commission, felt that it was necessary that Malaysia undergoes assessment once again, in order to truly reflect the remaining challenges in corporate governance, having taken into account the fruition of the reform efforts started in 1999 with the Finance Committee’s recommendations.
The ROSC initiative was for us, attractive on many fronts – firstly it is voluntary. With the concurrence of the Minister of Finance, the Securities Commission initiated the assessment process in 2004 with the World Bank. Secondly, it is benchmarked against a globally accepted set of standards on Corporate Governance, and the OECD Principles certainly provide Malaysia with international comparability with other countries around the world. Finally and most importantly, it is an independent assessment by the World Bank. The World Bank engaged three independent Malaysian consultants to benchmark our corporate governance framework against the OECD principles, before subjecting those findings to rigorous internal challenge and review at the World Bank.
Despite the rigorous assessment, I am proud to say that Malaysia has done very well, largely observing the principles set out by the OECD and even obtaining full marks in disclosure and transparency where it relates to accounting standards.
However, although we have achieved much there is no denying that, there is still work ahead of us. The Report identifies challenges for us to address as we drive the corporate governance agenda forward. But I am also pleased to say that those areas highlighted by the Report are areas that we have ourselves identified for further action and, have started addressing them. We will be sharing with you later this morning some of our plans and initiatives for the future.
We also note that one of the key challenges identified in the ROSC relates to strengthening shareholder activism in Malaysia. In this regard, we are very pleased to have with us today, the internationally renowned shareholder activist, Professor Hasung Jang. We very much look forward to hearing his experiences in Korea in order to provide us with some learnings on the way forward.
As the oversight regulator for public-listed companies, it is only natural that corporate governance issues will gravitate to, and be led by, the securities regulator. But our journey to where we are today, with the launch of today’s CG-ROSC could not have been achieved without concerted effort on all fronts – from the government, regulators, agencies and of course the companies, their directors, managers and shareholders themselves. We hope that the launch of the CG-ROSC today will once again galvanise efforts and create yet another wave of momentum to embed best standards of corporate governance in Malaysia.