KUALA LUMPUR (April 28): Public-listed companies (PLCs) are discouraged from appointing active politicians such as members of parliament and state assemblymen to their board of directors under a revised Corporate Governance Code that comes into effect immediately. All board members including public officials should be nominated based on their qualifications and have equivalent legal responsibilities.
This is according to the enhanced Malaysian Code on Corporate Governance (MCCG) that was released by the Securities Commission Malaysia (SC) today.
“There should be a formal, rigorous and transparent process for the appointment of directors (including reappointments) and senior management. In evaluating the ability of a director to perform his role effectively, the board should consider, among others, whether a director is ‘over-stretched’ in terms of his commitments to the board, to meet the demands and expectations of the role,” the SC said.
The revised MCCG also recommends that boards use a variety of approaches and sources to ensure that they are able to identify the most suitable candidates for positions on the board.
“This may include sourcing from a directors’ registry and open advertisements or the use of independent search firms.
“The company should disclose in its corporate governance (CG) report how candidates for board positions were sourced, including whether such candidates were recommended by the existing directors, members of senior management or major shareholders,” the SC added.
Meanwhile, existing board members standing for election should also be transparent and make the necessary declaration to the company’s board and shareholders on any existing or potential conflict of interest including whether they have a business, family or other special relationship within or outside of the company that could affect the execution of their roles as directors.
The revised code also states that all boards should comprise at least 30% women directors.
“Numerous studies have proven the business case for board diversity, in particular the participation of women on boards. If the composition of women on a board is less than 30%, the board should disclose the action it has or will be taking to achieve 30% or more and the timeframe to achieve this. A reasonable timeframe is one that is three years or less,” the SC said.
The participation of women in decision-making positions should not be focused on board positions alone but should be broadened to include members of senior management as the same benefits apply. Thus, the board should establish gender diversity policies to support the participation of women on the board as well as senior management.
The MCCG was first introduced in 2000 and has been a significant tool for CG reform and has influenced CG 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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