Yang Berhormat Datuk Johari bin Abdul Ghani, Second Deputy Minister of Finance Malaysia,
Yang Berbahagia Dato’ Ahmad Pardas Senin, Chairman of MINDA
Tun,
Distinguished guests
Members of the media,
Ladies and gentlemen
A very good morning,
- Yang Berhormat Dato’ Johari, thank you for taking the time to be here; we are honoured and it is a pleasure to have you here with us. Let me also thank MINDA for their kind invitation to speak this morning at an event which marks a significant milestone for MINDA and corporate governance in Malaysia.
- I would like to take this opportunity to congratulate MINDA on its 10th anniversary, a decade which has seen MINDA playing an instrumental role in supporting professional development of corporate directors in Malaysia, most significantly in delivering high board performance and efforts in inculcating good governance in government linked companies (GLCs) under the GLC Transformation Programme.
- It is also encouraging to see the international recognition of MINDA by influential international bodies the likes of the World Bank and the OECD, where MINDA has been engaged for various dialogues, and is increasingly regarded as a source of experience and practical advice on directors’ professional development, board leadership and performance. It reflects positively on the capacity and expertise which MINDA has built over the past decade and which we hope will continue to grow stronger.
Governance, culture and conduct
Ladies and gentlemen,
- Corporate governance has now been firmly embedded in the lexicon of companies, markets and economies globally. In the case of Malaysia our efforts on corporate governance began in the year 19981 and over the past decade and a half the Securities Commission together with the other regulators, industry bodies and a range of other stakeholders has long recognized that good corporate governance is a major imperative for the development and growth of our capital market. Good corporate governance coupled with a strong regulatory architecture provides the bedrock to the trust and confidence which drives markets and gives confidence to investors. At the micro level, it is well accepted that good governance serves to enhance the effective deployment of shareholder capital and ultimately contributes to growth and positive long-term performance of companies. But what is perhaps less appreciated is that at the macro level, it also forms a major source of resilience for economies and markets.
- Over the course of last year emerging markets globally were affected by unprecedented volatility driven by many factors including economic slowdown in major economies, decline in commodity prices and currency markets as well as continued uncertainties in global monetary policy conditions. And Malaysia as we are all aware was also affected by these sorts of factors.
- However, despite the effects being played out elsewhere, relatively speaking Malaysia fared much better. The benchmark index was down -3.9% compared to a decline of -17.0% in the MSCI emerging markets index. But more importantly, despite these conditions the Malaysian capital market provided a key source of financing for the economy with over RM90 billion worth of capital raised in the market which was the fourth year in a row that we had in excess of RM 90 billion being raised through the capital market. This shows that issuers and investors continued to place their trust and confidence in the capital market enabling the capital formation process to take place effectively. However, this would not have been the case, if we had not focused on building a strong corporate governance ecosystem and remain committed towards the path of strengthening the corporate governance framework in Malaysia.
- International standards setters like IOSCO, the Financial Stability Board and others continue to place renewed emphasis on CG in light of several recent episodes of misconduct and governance failures such as the Libor and forex rigging scandals, a demonstration of how CG helps weather the storm in turbulent times, and is imperative to drive the impetus towards adoption of higher CG standards particularly for emerging markets.
- Cognizant of the implications of this pressing agenda to market resilience and confidence, the Securities Commission Malaysia as the conduct regulator for the capital market remains firmly committed to the development of a strong corporate governance culture within the capital market landscape. Our efforts are in partnership with many different players as can be seen by the commitment and contributions of the likes of MINDA, MSWG, Bursa, MICG and the newly established Institutional Investor Council Malaysia.
- The SC on its part has continued to prioritise efforts in strengthening its supervisory, surveillance and enforcement capabilities. In the area of enforcement in particular we have been determined to achieve effective enforcement outcomes including credible deterrence measures to preserve market trust and confidence. In 2015, the SC charged a total of 17 individuals in the Sessions Court, 16 of which faced charges of committing insider trading; and a total of 8 individuals were sentenced to imprisonment terms for breaches of securities laws. Just recently the Sessions Court imposed the longest imprisonment sentence so far in a market manipulation case; demonstrating an increased recognition (and understanding) on the severity of capital market offenses.
- These efforts are also complemented with measures to strengthen the gatekeeping function of auditors with the AOB continuing to set the tone for audit quality. In December last year, the AOB took an unprecedented action as it revoked the registration of an audit firm along with its managing partner, for the failure to comply with auditing standards.
- We are also aware that corporate governance practices must be regularly reviewed to ensure that market players and institutions continue to preserve the integrity of the capital market as it evolves in breadth, depth and structure. In this regard, we have initiated a public consultation for our draft of the Malaysian Code on Corporate Governance 2016. With its focus on key strategic areas which include strengthening the board, shareholder relationships and risk management, this revised Code adopts a new approach of “apply or explain an alternative” designed to promote a more meaningful application of good governance practices, and to move away from a mechanical compliance mentality to corporate governance.
- In addition, the revised Code features the graduated concept of “Core” and “Core+”, whereby companies are encouraged to voluntarily adopt the exemplary Core+ practices, in addition to their implementation of the Core standards.
- It is our hope that the new Code will embed an ethos of a strong corporate governance culture by compelling boards of directors to inculcate the discipline to engage in on-going self-reflection, analysis and evaluation of their company practices while at the same time strengthening the appreciation for the business imperative of sound corporate governance.
Board professionalization through continuous professional development of directors
Ladies and gentlemen,
- Effective board of directors are at the heart of governance; there is a need to support boards in keeping pace with a constantly shifting business landscape, and increased expectations on the role of directors. The establishment of an institute of directors is therefore critical to respond to this need; continuous professional development needs to take a whole new dimension, one that should include dialogue on how individual directors and boards deal with the increasingly rapid emergence of novel and disruptive technologies, the intensifying nature of globalisation and the relentless pressure on companies to innovate. The content for professional development must reflect the change in business practices and market conditions to stay relevant for directors, and match the needs of companies and the market.
- Strategic and intellectual linkages, such as the partnership and MOUs (which MINDA is formalising today) with established and well-recognised institutions the likes of the Australian Institute of Corporate Directors, the Indonesian Institute of Corporate Directorship and the Institute of Chartered Accountants of Sri Lanka will certainly create a rich network for directors, and pave the way for cross pollination of expertise and provide directors with a wider platform to exchange latest thoughts, trends and directions in relation to director development, boardroom practices and corporate governance in general.
- Ultimately the objective of board professionalization is to enhance board effectiveness, which is strongly dependent on whether the board is diverse, and has a good mix of individuals who possess the right skills, experience and judgment to govern effectively. The business case for diverse boards, including gender diversity is clear and compelling. Diversity brings fresh perspectives, enables innovation of ideas and leads to robustness in board discussions. It is therefore in the enlightened self-interest of companies and boards to examine their composition, policy on diversity and establish clear measures and targets to ensure that there is adequate representation of women on their boards.
Conclusion
Ladies and gentlemen,
- Needless to say, being a director is a tough and demanding job. Uniquely positioned at the helm of the company, directors are expected to provide long term strategic direction, entrepreneurial leadership and effective oversight. While much is expected, I am confident that directors are up to the task. Much of the success of Malaysian companies belongs to the effort of directors and application of good corporate governance. In this regard, the transformation towards an institute of directors by MINDA will go a long way in achieving these outcomes.
- Thank you for your kind attention.
