Tan Sri Zarinah Anwar, Chairman of the Institute of Corporate Directors Malaysia,
Honoured guests,
Ladies and gentlemen.
Assalamualaikum Warahmatullahi Wabarakatuh
- Firstly, I would like to thank the Institute of Corporate Directors Malaysia (ICDM) for inviting me to deliver the keynote address at this year’s International Directors Summit. I understand that this is the second instalment of this summit.
- The theme of the summit could not be more appropriate, unleashing the Bold and Brave board in you. I am certain you would agree that it is almost a cliché to say that we are living in challenging times, and being bold and brave is not an option, but a must. Allow me then to be frank, bold, and brave as well.
- Businesses are operating in a complex and volatile setting, in which stakeholder expectations and demands on boards are intensifying and expanding. Companies face pressures on multiple fronts, including the need to remain agile, and not fragile.
- Research has shown that the average lifespan of a company is on the decline. By 1990, the average tenure of companies on the S&P 500 had narrowed from 33 years in 1965 to 20 years. By 2026, the average age is expected to drop to 14 years. At this rate, about half of today’s S&P 500 companies will be replaced over the next 10 years.
- Business longevity and prosperity will therefore depend on boards providing management with strategic direction to support innovation, making sure that the business is resilient in the face of new risks and evolving challenges, and instilling a corporate culture that best positions the company for the future.
- “The business of business is business”, the famous quote by Milton Friedman, is no longer true. Instead, companies are starting to accept the demands and expectations of stakeholder capitalism and sustainability.
Discharge of directors’ duties remains fundamental
Ladies and gentlemen,
- All these new imperatives are based on the fundamental principles of corporate governance - board leadership and effectiveness, effective audit and risk management, integrity in corporate reporting, and maintaining meaningful stakeholder relationships.
- The SC continues to focus on strengthening the corporate governance standards of listed companies to stop corruption, misconduct and fraud; and preserve stakeholders’ trust.
- Fundamentally, it will come down to how effective each director discharges his or her fiduciary duties. Also, how well boards maintain their independence of mind and position so they can exercise their roles and responsibilities effectively.
- If you allow me, I would like to draw on my own past experience of being a director of several public listed companies. From what I have seen, there are some independent directors who often times attend board meetings not quite well prepared, who tend to rely heavily on the views and decisions of executives. Whereas, the role of an independent director, first and foremost, is to provide a check and balance to the executive. In order to protect the director’s own interest, he or she must not be over-reliant on management.
- An independent director must take audit findings – external and internal – very seriously. Particular attention must be paid to risk assessments to better manage any possible disruptions to the business. One must also be satisfied with the accuracy and completeness of company disclosures and public announcements.
- Based on experience, I would definitely encourage independent directors to work closely and share views amongst themselves. This will allow them to be in a position to influence the board in the best interest of the company. It is also a recommended practice in the Malaysian Code on Corporate Governance .
- According to the law, the core duties of both executives and non-executive directors are the same. All directors are expected to exercise their powers in the best interest of the company and for the right purpose.
- From 2019 to date, the SC has taken 104 administrative actions against 39 individual directors, including non-executive directors for various breaches of securities laws, including furnishing of information that is false or misleading to the stock exchange. Non-executive directors have also been convicted and imposed with imprisonment as well as fines following the SC’s criminal enforcement action efforts.
- Board members should not view their position as a privilege or perk, but one that comes with a heavy responsibility, and if not properly discharged, may well turn into a personal liability.
- Indeed, Boards and directors are not decorative pieces but are important parts of a company, particularly when it comes to governance .
A board in name only
Ladies and Gentlemen,
- ICDM has curated an excellent line up of speakers and topics for this summit. They cover pressing issues and provide a platform to share fresh insights and bold ideas.
- I note that there will be a session on a corporate scandal that made headlines worldwide. Case studies are helpful as they highlight good governance lessons and red flags to look out for.
- One of which is making sure that the board is more than just in name only. High-impact boards possess the right individuals for the role. This is what makes “Great Boards Great!”. The board’s composition is critical to ensure that the company can handle new challenges, stay competitive, and meet investors’ expectations. Boards need diversity, in terms of age, experience, ethnicity, and gender.
- On diversity, the SC has long prioritised better board diversity, especially when it comes to the participation of women on boards.
- Our collective efforts have resulted in progress - in 2011, only 7.7% of board positions were held by women, and more than half of listed companies had all male boards. Now, 80% of listed companies have at least one-woman director on the board. Improvement was also recorded following the implementation of the mandatory rule requiring a listed company to appoint at least one woman director to its board. However, listed firms should not stop at one woman director for compliance reasons, but strive towards the 30% critical mass that is required.
- The SC continues to monitor the appointment of women on boards. As of 1 September 2022, 282 women directors were appointed to boards. This accounts for 34% of all new board appointments in 2022, compared to 17% in 2021. 79% of the newly appointed women were for the position of independent non-executive directors. This is an important finding, as it addresses concerns that the ‘one woman on the board’ rule could lead to the board appointment of related individuals, spouses and children, just to meet the quota.
Closing
Ladies and gentlemen,
23. Before I end, let me reiterate a common pitfall we must avoid, that is, over reliance on the executives or management to the point where they control the board.
24. We must question to what extent is the board knowledgeable enough to constructively challenge management assumptions and proposals? Can the board talk
to management about topics like cyber threats and transition risks? And lately on sustainability.
25. This is where ICDM comes in, to support, among other things, the professional development needs of directors. The SC, Bursa Malaysia and ICDM are in the process of developing a new on-boarding programme for directors, focused on sustainability. This programme is one of the initiatives under the SC’sCorporate Governance Strategic Priorities (2021-2023). Its goal is to provide directors with a common baseline understanding of the most important sustainability
issues to enable boards to discharge their roles effectively. More details will be announced later.
26. I am sure you all agree that the requirements for tomorrow’s successful companies will differ from those of today. As corporate stewards, what you do or don’t do in the coming years, will have a big impact on the resilience and success of the company and country at large.
27. On that note, I would like to congratulate ICDM on this Summit. I hope that the conversations over the next three days will go a long way towards our goal of responsible, bold and brave boards.
28. I wish you a productive discussion in the days ahead.
Thank you.
