Corporate Governance in Malaysia

bodied Governance is a concept in which it has been foundation for decades although not in the ex flake form that it has come to be understood today (Anandarajah, 2001). The term integrated governance was introduced in Malaysia in 1997 during the Asian Financial Crisis. It withal drew the publics fiscal aid on the weaknesses of the Malaysian unified governance practice (Nor Azizah Zainal Abidin, 2007).Besides that, the downf every(prenominal) of Sime Bank, the Bumiputera Malaysian Finance (BMF) soil, the irregularities in Renong Berhad, the Perwaja fiasco and the internal management problem faced by Malaysian Airline System (MAS) forced politics to enhance corporate governance regulations (Norwani, Mohamad, & Chek, 2011).The High Level Finance Committee Report 1999 on corporeal Governance in Malaysia defined corporate governance as the process and structure used to draw and manage the business and affairs of the accompany towards enhancing business prosperity and corpor ate accountability with the ultimate nonsubjective of realizing long term sh beholder value, whilst taking into account the occupy of opposite stakeholders. (Malaysian Code on Corporate Governance, 2012). The code that governs the corporate governance in Malaysia is callight-emitting diode the Malaysia Code of Corporate Governance (MCCG).This code was recently rewrite in March 2012 and it is k with bug out delayn as the MCCG2012. Besides providing relevant information to investors, this code also aims to gain transp atomic number 18ncy management of companies, to enable investors to guide the direction of the company (Nor Azizah Zainal Abidin, 2007). The MCCG 2007 was revised with the aim to enhance the directors employment to the companies. With the revised MCCG 2012, there are still many issues arising from corporate governance. However, to some extent there are improvements in some area of the corporate governance.The revised MCCG 2012 contained a few improvements in the r ecommendation. This Code now establishes clear roles and responsibilities where respectable standard should be formalized through the code of conduct by the hop on to ensure its compliance. Through the companys code of conduct, it mandates the board to formulate system of compliance and ethical standards. Besides, it also includes ensuring that the companys strategies promote sustainability. There are many improvements made under funding of independence. 3. 1 mandate boards to undertake an annual nonsymbiotic director assessment.For an individual to serve as an fissiparous director, 3. 2 mandate a cumulative term to nine years. Under 3. 3, justification and shareholders approval is needed if the board retains as an independent director. And lastly MCCG 2012 recommends that a majority of independent directors must be in the board and the board chairman is not an independent director. These were not in the MCCG 2007. The about important improvement under the MCCG 2012 is to ens ure timely and high quality revealing. Under this the board should fake certain the appropriate disclosure procedure and policies of the company.Also, for effective dissemination of information, board should encourage the company to leverage on information technology. This is to promote better use of technology. Furthermore, with the existing recommendation, MCCG 2012 also state that the board should also encourage pool voting in order for strengthening the relationship f the company and shareholder. This imposes transaction to inform the shareholders of their right to demand a poll vote by the general make fulling chairman. The bear on here is whether the revised MCCG have enhanced the corporate governance of the companies in Malaysia.This code calls for voluntary compliance, coupled with the requirement in the listing rules of KLSE which make mandates disclosure of the extent of compliance with the best practice sets out in the Code, while allowing for some flexibility in its implementation by companies. The aim here is to impart necessary information and encourage disclosure to investors who entrusted their funds to companies, so that they female genitals monitor the way it is macrocosm run (Finance Committee on Corporate Governance, 1999). This Code has somehow reduced the number of pecuniary scandal but definitely not completely clear it off.There are many scenarios that company collapsing due to financial scandal as what was initiated by the BMF (Bank Bumiputera Finance) scandal. The law governing directors duty consist of miscellaneous forms of law. These duties have been observed also contain a plurality of legal fields such as company law and employment law (Hee, 2003). Section 132(1) of the Companies Act 1965 requires a director to use rational diligence and to act honestly in the discharge of his duties. The duty to act in the best interest of the company as a whole also from common law covers the collective interest of some(prenominal) existing and prospective shareholders.It is suggested that the common law fiduciary duty to avoid conflicts of interest should be systematise to allow directors to be clear about their obligations in conflict situations. KLSE listing Requirements stipulates that public listed companies must got at least two independent directors. Individuals who are expressly excluded from being eligible to act as independent directors include major shareholders, professional advisers or relatives of an executive director or major shareholder of the listed company (Hee, 2003). This provides a better equilibrium of powers between directors and independent directors.The auditor actually provides a check on the information aspect of the governance system rather than having a direct corporate governance responsibility. As widely recognized, the duties of the audit committees have been related to internal audit financial reporting and external auditor. The wideness of an audit committee in the framewor k of corporate accountability is where audit committees are expected to act as the guardian of investors interests and corporate accountability suggested by the wide adoption of audit committee (Saidin, 2007).The principal(prenominal) duties are to inspect and form an opinion as to whether the financial statements have been drawn up in accordance with the financial reporting standards of Malaysia and the Companies Act 1965 to obtain reasonable assurance that the financial statements are absolve from material misstatements and to examine and form an opinion whether the financial statements give a true and fair attend of the financial position of the Company as of the financial year end and of its financial exertion and specie flows of the year end (Yycadvisors, 2012).The pertinent issue in corporate governance is due to mismanagement, directors duty not well performed, abusing the minority projection / shareholders and not having meetings often to update what is going on. circu mspection or board should practice the commonly accepted patterns of corporate governance such as independence, accountability, roles and responsibilities, equity and ethical behavior, and transparency. A companys board should have a number of independent directors. They should be individual with no connection with the company separate than a seat in the board.Also, selected independent directors should meet the independence test under the regulatory rules and also to serve with independence of minds. This process of selecting independent directors is apt(predicate) to maintain their independent mindedness (Rahman & Salim, 2010). To create a system that holds decision makers accountable while according fitting respect to their authority over corporation is a challenging thing for corporate governance. The market, shareholder voting, and polite and criminal liability is the regular accountability mechanism.In theory, to create incentives for deterring self-dealing and other fo rms of misconduct and for responsible decision reservation these mechanisms work together. However, in reality, these contain flaws that allow individuals to occasionally exercise an irrational discretion when making decisions that will affect many others. The impact can be distressing for investors, employees, and the economy when the governance system fails (Jones, 2010). disposed the tick off of publicly held companies, management should be accountable to its board of directors.The board, in turn, should be accountable to the shareholders and other stakeholders. The principle of accountability can be enhanced by many ways, such as enforcing rules and laws, defend shareholders rights, imposing duties on officers and ensuring the scrutiny of the companys financial statements by independent auditors (Rahman & Salim, 2010). To provide creditors, depositors and shareholders worthy assurance that they will abstain from fraud activities, financial transparency would be an important mechanism.Timely and accurate disclosure should be made regarding all materials matter concerning the corporation is one way to ensure excellent corporate governance. The voluntary items disclosed in the annual reports, the time of the information to be released and quantity of information orderd by the board of directors. In disclosing all the relevant information in the financial reporting, the BOD will be transparent when they are independent and examine their responsibility to be accountable to the shareholders.To ensure the quality of the financial reporting process is one of the main functions corporate governance play. Financial reporting should be ready with integrity which relies on corporate governance. Dependency of the integrity of financial reporting is highly on the performance and conduct of individual involved. What lead the company to reporting adversity is when the corporate governance fails where most of them manipulated their financial statement to meet the p erformance expectation.Research also has found that there is a connection between weaknesses in corporate governance with bad financial quality, fraudulent financial statement weak internal control and clams manipulations (Norwani, Mohamad, & Chek, 2011). Problems that arise in companies in Malaysia regarding corporate governance have to do with the political handicap to certain extent. State/ political relation can be said as the real company control compared to law/policy regulated under corporate governance. For example, the famous corporate governance failure in Malaysia the scandal of Perwaja Steel Sdn.Bhd.. Perwaja, a company own by the government activity in collaboration with a Japanese company, Nippon Steel Corporation that was established by HICOM Bhd. in 1982, to fulfill the governments rush in implementing the heavy industrial policy (Nor Azizah Zainal Abidin, 2007). This can be seen as an example where the state, as a shareholder in the company, has direct interest to it. Fraud and corruption can easily happen with the universe of discourse of this relationship. Due to the misconduct of directorship the corporate governance of Perwaja collapsed.Perwaja faced with corruption and mismanagement in tender and lead awarding. Furthermore, doubtful trading transactions and payments were carried out to non existing companies (Netto, 2004). There are one sided contracts between Perwaja and twain local and foreign companies plus with erroneous records and many of millions ringgit were unauthorized (Norwani, Mohamad, & Chek, 2011). This shows the failure of corporate governance in Perwaja Steel Sdn. Bhd.. However, with fresh funds being injected by the government today, Perwaja is still in business (Netto, 2004).In other case, like the Malaysian Airlines System Bhd. (MAS) faced with internal management problems. Tan Sri Tajuddin Ramli, the largest shareholder in MAS who held two Chief Executive Officer plus with chairman position, entered into un ex pediencyable business activities whereby he had over working out the flight destination, has caused the occurrence of governance failure (Norwani, Mohamad, & Chek, 2011). The new management under Tajuddin Ramli had already cause MAS to suffered considerable debts, prior to the Asian Financial Crisis.This had put MAS at assay during the crisis as all their transaction were do is UD dollars (Nor Azizah Zainal Abidin, 2007). Due to the veto power of the government in MASs management the decision on airlines destinations were subjected to governments decision and approval. To comply with Malaysian foreign policy, MAS had to oblige and extend its services, where at that time, not universal destinations or less concentrated areas were decided by the government. This decision contributed lower return to MAS.From this point of view, we can see that the government/political involvement in business have a huge influence in the management of the company. Besides another reason of governan ce failure of MAS was due to increased in capital expenditure caused by many orders on planes from 1998 to 2001. It was simply a mismatch between earnings and expenditure in the financial reporting, whereby earnings were is ringgit while the latter was in US dollar. MAS ended up paying a higher cost than what was originally ordered for. MAS was then repurchased for more than double of the market price.The question here was before the governments buyback, why an audit was not conducted which would have a very important bearing on the proper price of the government buyout. An international case occupy example would be the Satyam Linggam scandal, the biggest corporate scam in India has come to the most respected businessman. Satyam founder resigned as its chairman after admitting to cooking up the account book. The CEO was responsible for the board accounting improprieties that describe a large amount of cash holding that does not exist and overstating the companys profit and revenu e.With a successful feat on the part of investors in order to prevent an effort by the minority shareholding promoters to use the firms cash reserves to buy two companies owned by them, the scandal all came to know. Consequently, this failed the attempt of expansion on Satyams part, which in turn led to a collapse in companys stock prices, followed by a shocking exculpation from Raju. History has played a part in the development of corporate governance in India. The set-back code for corporate governance was published in 1988, but by the Confederation of Indian persistence (CII) entitled desirable Corporate Governance.Unlike codes in some other countries, the CII code did not make statements of principle but addressed specific business issues in India. The code called for professionally competent, independent non-executive directors to make up the board. None should hold more than ten listed company. The code also called for audit committees. A year later(prenominal) 1999 a gov ernment committee released Indias National Code on Corporate Governance (Ticker, 2009). Reflecting international standards, the code had the approval by the SEBI and incorporated into stock exchange rules.The government issued guidelines on corporate governance in central public sector enterprises in 2007, covering the composition of the boards, audit committees, accounting standards and risk management (Ticker, 2009). However, corruption remains entrenched in India, not at least in the government administration. The Ministry of Company Affairs and the Securities and Exchange Board need more competent staff experience in corporate governance matters. But rapid economic growth and potential in India suggest that the abutting few years will see significant changes in both attitude and practice (Ticker, 2009).The failure in corporate governance forced rules and regulations to be enacted (Norwani, Mohamad, & Chek, 2011). Recent corporate scandals and the near-collapse of the global ? n ancial system all demonstrate the importance of maintaining an effective corporate governance regime (Jones, 2010). With the revised MCCG 2012, duties of all the board of directors are clearly stated, and this will serve as guidance and should improve the corporate governance of the company.