The Malaysian Code on Corporate Governance (Revised 2007), which comes into effect today and supersedes the earlier Code issued in March 2000, contains key amendments aimed to strengthen the roles and responsibilities of boards of directors and audit committees, and ensure that they discharge their duties effectively.

The revised Code spells out the eligibility criteria for appointment of directors, the composition of the board of directors and the role of the nominating committee. Independent non-executive directors continue to make up at least one-third of the membership of the board but must provide a more meaningful and independent oversight function.

The nominating committee, as the gatekeeper for a director’s appointment and reappointment, are expected to evaluate the professionalism and integrity of a proposed director, in addition to ensuring the basic requirements of possessing the necessary skills, knowledge, expertise and experience to discharge his duties and responsibilities as a board member.

To ensure that the audit committee serves as an effective check on the management of a company, the revised Code details the composition of audit committees, the frequency of meetings and the need for audit committee members to attend continuous training to keep abreast with developments in relevant financial and other related developments. In addition, executive directors will no longer be allowed to become members of the audit committee in order to preserve the independence of the committee.

Following the recent corporate misdeeds which have underscored the importance of having an effective and independent internal audit function, the revised Code requires all PLCs to carry out their own internal audit functions. The reporting line for internal auditors has also been clarified, with the board of directors to be held accountable for ensuring adherence to the scope of internal audit functions.
The revised Code is a result of the continued collaborative efforts between the SC with other government agencies and the industry to strengthen Malaysia’s corporate governance framework.

The revised Code is available here.