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THE NEW CODE ON CORPORATE GOVERNANCE 2012

THE NEW CODE ON CORPORATE GOVERNANCE 2012

RAISING THE BAR

The new Malaysian Code on Corporate Governance 2012 (??strong>MCCG 2012?? was issued by the Securities Commission (??strong>SC?? in March 2012, and is effective from 31 December 2012. The MCCG 2012 is the first major deliverable of the SC?? Corporate Governance Blueprint 2011 which outlines a 5 year strategic action plan of the SC to elevate the standards of corporate governance in Malaysia.

Overview

The MCCG 2012 supersedes the Malaysian Code on Corporate Governance 2007 (??strong>MCGG 2007??. It sets out 8 principles and 26 recommendations on good corporate governance that companies should apply. Each recommendation is followed by a commentary, which provides guidance for implementation. The MCGG 2012 adopts and supplements some of the best practices of the MCGG 2007, and it also introduces new recommendations, highlighted below, to strengthen corporate governance.

Compliance

Compliance with the MCCG 2012 is voluntary. However, all listed companies must, pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad (??strong>LR??, report in their annual reports how they have complied with the principles and recommendations of the MCCG 2012, and identify and explain any areas of non-compliance.

New recommendations

1.???????? Roles and responsibilities of the board

Code of ethical conduct

The board should formalize a code of conduct to implement ethical standards that include communications and feedback channels to facilitate whistle blowing. The board should also implement necessary internal systems to ensure compliance with the code of conduct.

Promoting sustainability

The board should formalize strategic policies that promote the company?? sustainability with particular focus on the environmental, social and governance aspects of the business.

Board charter

The board is expected to formalize a board charter that set out key values, principles and ethos of the company. The charter should also set out the division of responsibilities between the board, management, various committees, chairman and chief executive officer, and the processes and procedures for board meetings.

The code of conduct, strategic policies and board charter should be reviewed regularly and published in the website of the company. The strategic policies should also be published in the annual report of the company.

2.???????? Independent directors

Annual assessment

The board is encouraged to undertake an annual assessment of the independent directors in the company based on prescribed criteria developed by the Nominating Committee (??strong>NC?? to assess the independence and objectivity of these directors. Such assessment should be disclosed in the company?? annual report and any notice for general meetings regarding the appointment and re-appointment of independent directors.

Tenure

The tenure of independent directors is generally capped to a cumulative period of 9 years. Upon the completion of the period, such directors may be re-designated as non-independent directors or, in exceptional cases, remain as independent directors subject to the assessment by the NC and approval of shareholders. The board should provide strong justifications to the shareholders in such cases.

Balance of power

The chairman of the board should generally be an independent director. If the chairman is not an independent director then the majority of board members should comprise of independent directors to ensure a balance of power on the board.

3.???????? Commitment of directors

The board should set out expectations on the time commitment for its members to carry out their responsibilities. This commitment should be obtained at the time of appointment. In addition, the board should also set out protocols for directors accepting new directorships. Further, continuing education programs should be introduced by the board with a view of ensuring directors enhance their skills and knowledge.

4.???????? Corporate disclosure

Implementation of policies and procedures

The board should formalize practical corporate disclosure policies and procedures which comply with the LR. In formulating these, the board should be guided by feedback from its management and industry best practices.

Use of information technology

Companies are encouraged to leverage on information technology to disseminate information, including dedicating a section on corporate governance on their website.

5.???????? Strengthening shareholder relationship

The board should put resolutions to vote by way of poll. The chairman should also inform shareholders of their right to demand a poll vote at the onset of shareholders??meetings. Companies are encouraged to employ electronic means for poll voting.

Conclusion

Strong corporate governance is critical for business success and key to winning investor confidence in a market. By and large the MCCG 2012 enhances the culture of corporate governance for corporate Malaysia. Nevertheless, the collective effort of all stakeholders is necessary to sustain the drive to improve corporate governance to the desired levels moving forward.

Contributed by Sharmitha Visvalingam of Christopher Lee & Co. (www.christopherleeco.com).

Article length ??????????? : ????????? 681 words

Date??????????????? ??????????? :? ????????? 20 February 2013

Contact?????????? ??????????? :? ????????? The Editor

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