KUALA LUMPUR (April 28): The chairman of the board of directors of a Malaysian public listed company (PLC) should not be a member of its audit committee, nomination committee or remuneration committee.

This is according to an updated version of the Malaysian Code on Corporate Governance (MCCG), which was released today by the Securities Commission Malaysia (SC).

“Having the same person assume the positions of chairman of the board, and chairman of the audit committee, nomination committee or remuneration committee gives rise to the risk of self-review and may impair the objectivity of the chairman and the board when deliberating on the observations and recommendations put forth by the board committees.

“Thus, the chairman of the board should not be involved in these committees to ensure there are checks and balances as well as objective reviews by the board,” the SC said.

The SC has also found prolonged vacancy in the position of chairman in several boards of listed companies, and for some, the chairperson of the board meeting is appointed at each meeting and the role is assumed by different directors.

“Such prolonged vacancy and inconsistency in the leadership of the board is against the principles of good corporate governance. The chairman plays a critical role and one should be appointed to ensure there is accountability on the execution of the chairman’s role and the role of the board,” the SC said.

The updated MCCG also recommended that the audit committee of a PLC to have a policy that requires a former partner of the external audit firm of the listed company to observe a cooling-off period of at least three years before being appointed a member of the audit committee.

“The audit committee should comprise solely of independent directors,” the SC added.

As for remuneration packages for PLCs, the enhanced MCCG recommended that a committee be set up to assist the board in developing and administering a fair and transparent procedure for setting policy on remuneration of directors and senior management. This is important as it would ensure that remuneration packages are determined on the basis of the directors’ and senior management’s merit, qualification and competence, while having regard to the company’s operating results, individual performance and comparable market statistics.

“The committee should only consist of non-executive directors and a majority of them must be independent directors, drawing advice from experts, if necessary. Listed companies are encouraged to table separate resolutions on the approval of the fees of each non-executive director,” the SC said.

The MCCG was first introduced in the year 2000 and has been a significant tool for corporate governance reform and has influenced corporate governance practices of companies positively.

The code was reviewed and updated in 2007, 2012, 2017 and is now at its fourth revision in 2021, to ensure that it remains relevant and is aligned with globally recognised best practices and standards.

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