Mccg 2012 & cg


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Mccg 2012 & cg

  3. 3. Weakness of MCCG 2007 Overlapping authority of the regulatory institutions governing the securities market Weak protection of minority shareholders Lacking of punishment for directors if breaches of duty in MCCG
  4. 4. Malaysian Code on CorporateGovernance 2012( MCCG 2012 ) Consists 8 Principle & 26 recommendation All companies are encouraged to adopt MCCG 2012 MCCG 2012 is effective immediately Extent report compliance with financial year ending 31 December 2012
  5. 5. ESTABLISH CLEARPrinciple 1 ROLES AND RESPONSIBILITIES The responsibilities of the { board, which should be set out in a board charter, include management oversight, setting strategic direction premised on sustainability and promoting ethical conduct in business dealings
  6. 6. 1.1 The board should establish clear functions reserved for the board and those delegated to management1.2 The board should establish clear roles and responsibilities in discharging its fiduciary and leadership functions
  7. 7. 1.3 The board should formalise ethical standards through a code of conduct and ensure its compliance.
  8. 8. 1.4 The board should ensure that the company’s strategies promote sustainability
  9. 9. 1.5 The board should have procedures to allow its members access to information and advice
  10. 10. 1.6 The board should ensure it is supported by a suitably qualified and competent company secretary
  11. 11. 1.7 The board should formalise, periodically review and make public its board charterDivision between the board and management committees established bythe board
  12. 12. Processes and procedures for convening board meetings
  13. 13. MCCG 2012 2007 Code Part 2 : AA XVI Relationship of the board to management The board, together with the chief executive officer, shouldPrinciple 1 1.1 The boardclear establish should develop position descriptions for the board and for the chief functions reserved for executive officer, involvingEstablish clear the board and those definition of the limits to roles and delegated to management’s responsibilitiesresponsibilities management In addition, the board should approve or develop, with the chief executive officer, the corporate objectives for which the chief executive officer is responsible to meet
  14. 14. MCCG 2012 2007 Code Part 1 : A I The board Every listed company should be headed by an effective board which should lead and control the company. Part 2 : AA I Principal responsibilities of the board The board should explicitly assume the1.2 The board should establish following six specific responsibilities, which clear roles and facilitate the discharge of the board’s responsibilities in stewardship responsibilities: discharging its fiduciary and leadership functions • Reviewing and adopting a strategic plan for the company • Overseeing the conduct of the company’s business to evaluate whether the business is being properly managed • Identifying principal risks and ensuring the implementation of appropriate systems to manage these risks
  15. 15. MCCG 2012 2007 Code • Succession planning, including appointing, training, fixing the compensation of and where appropriate, replacing senior management • Developing and implementing an investor relations programme or shareholder communications policy for the company • Reviewing the adequacy and the integrity of the company’s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.1.3 The board should formalise ethical standards through a - code of conduct and ensure its compliance1.4 The board should ensure that the company’s strategies - promote sustainability
  16. 16. MCCG 2012 2007 Code Part I : A III Supply of information The board should be supplied in a timely fashion with information in a form and of a quality appropriate to enable it to discharge its duties 1.5 The board should have Part 2 : AA XIX procedures to allow its Access to information members access to Directors should have access to all information and advice information within a company whether as a full board or in their individual capacity, in furtherance of their duties Part 2 : AA XX Access to Advice There should be an agreed procedure for directors, whether as a full board or in their individual capacity, in furtherance of their duties, to take independent professional advice at the company’s expense, if necessary
  17. 17. MCCG 2012 2007 Code Part 2 : AA XXI All directors should have access to the advice and services of the company secretary Part 2 : XXII 1.6 The board should ensure it Directors should appoint as secretary, is supported by a suitably someone who is capable of carrying out qualified and competent the duties to which the post entails, and company secretary his removal should be a matter for the board as a whole. The board should recognise that the chairman is entitled to the strong and positive support of the company secretary in ensuring the effective functioning of the board 1.7 The board should formalise, periodically review and make public its board charter -
  18. 18. STRENGTHENPrinciple 2 COMPOSITION The board should have { transparent policies and procedures that will assist in the selection of board members. The board should comprise members who bring value to board deliberations.
  19. 19. The board should establish a Nominating CommitteeRecommendation which should comprise exclusively of non-executive 2.1 directors, a majority of whom must be independent.Recommendation 2.1-exclusivelynon-executive(6/6)-majority independence(3/6)
  20. 20. Recommendation The Nominating Committee should develop, maintain and review the criteria to be used in the recruitment 2.2 process and annual assessment of directors.
  21. 21. Recommendation The board should establish formal and transparent remuneration policies and 2.3 procedures to attract and retain directors.
  22. 22. Who set the non executive directors and executive directors remuneration?
  23. 23. MCCG 2012 2007 Code Part I : A IV Appointments to the Board There should be a formal and transparent procedure for the appointment of new directors to the board Part 2 : AA VIII Appointments to the board 2.1 The board should The board of every company should establish a Nominating appoint a committee of directorsPrinciple 2 Committee which composed exclusively of non-executive should comprise directors, a majority of whom are exclusively of non- independent, with the Strengthen executive directors, a responsibility for proposing newcomposition majority of whom must nominees to the board and for assessing be independent directors on an ongoing basis. The actual decision as to who should be nominated should be the responsibility of the full board after considering the recommendations of such a committee. The nominating committee should:-
  24. 24. MCCG 2012 2007 Code • recommend to the board, candidates for all directorships to be filled by the shareholders or the board. In making its recommendations, the nominating committee should consider the candidates’ – skills, knowledge, expertise and experience – professionalism – integrity – in the case of candidates for the position ofThe revised Code provides independent non-executive directors, the nominating committee should also evaluategreater clarity on the the candidates’ ability to discharge suchaspects which a responsibilities/functions as expected fromnominating committee independent non-executive directorsshould consider when • consider, in making its recommendations,recommending candidates candidates for directorships proposedfor by the chief executive officer and, withindirectorships the bounds of practicability, by any other senior executive or any director or shareholder • recommend to the board, directors to fill the seats on board committees
  25. 25. MCCG 2012 2007 Code Part 2 : AA IX The board, through the nominating committee, should annually review its required mix of skills and experience and other qualities, including core competencies which nonexecutive directors should bring to the board. This should be disclosed in the annual report2.2 The Nominating Committee Part 2 : AA X should develop, maintain The board should implement a process, to be and review the criteria to be carried out by the nominating committee used in the recruitment annually, for assessing the effectiveness of process and annual the board as a whole, the committees of the assessment of directors board, and for assessing the contribution of each individual director, including independent non-executive directors, as well as the chief executive officer. All assessments and evaluations carried out by the nominating committee in the discharge of all its Functions should be properly documented
  26. 26. MCCG 2012 2007 Code Part 2 : AA XIII Directors’ training As an integral element of the process of appointing new directors, each company should provide an orientation and education programme for new recruits to the board Part 1 : B I The level and make-up of Remuneration Levels of remuneration should be sufficient to attract and retain the directors needed to 2.3 The board should run the company successfully. The establish formal and component parts of remuneration should be transparent structured remuneration policies so as to link rewards to corporate and and procedures to individual performance, in the case of attract and retain executive directors. In the case of non- directors executive directors, the level of remuneration should reflect the experience and level of responsibilities undertaken by the particular non-executive concerned
  27. 27. MCCG 2012 2007 Code Part 1 : B II Procedure Companies should establish a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors Part 1 : B III Disclosure The company’s annual report should contain details of the remuneration of each director Part 2 : AA XXIV Remuneration Committees Boards should appoint remuneration committees, consisting wholly or mainly of nonexecutive directors, to recommend to the board the remuneration of the executive directors in all its forms, drawing from outside advice as necessary. Executive directors should play no part in decisions on their own remuneration. Membership of the remuneration committee should appear in the directors’ report. The determination of remuneration packages of non-executive directors, including nonexecutive chairmen, should be a matter for the board as a whole. The individuals concerned should abstain from discussing their own remuneration
  28. 28. REINFORCEPrinciple 3 INDEPENDENCE { The board should have policies and procedure to ensure effectiveness and independent directors.
  29. 29. Recommendation 3.1Board Should Undertake An Assessmentof Its Independent Directors Annually
  30. 30. Recommendation 3.2The tenure of an independent director should notexceed a cumulative term of nine years. Uponcompletion of the nine years, an independent directormay continue to serve on the board subject to thedirector’s re-designation as a non-independentdirector Recommendation 3.3 The board must justify and seek shareholders’ approval in the event it retains as an independent director, a person who has served in that capacity for more than nine years
  31. 31. Recommendation 3.4The positions of chairman and CEO should be heldby different individuals, and the chairman must be anon-executive member of the board
  32. 32. Recommendation 3.5The board must comprise a majority ofindependent directors where the chairman ofthe board is not an independent director
  33. 33. MCCG 2012 2007 Code 3.1 The board should undertake an assessment of its independent - directors annually 3.2 The tenure of an independent director should not exceed a cumulative term of nine years. Upon completion of the nine -Principle 3 years, the independent director Reinforce may continue to serve on theIndependence board subject to the director’s re- designation as a non- independent director 3.3 The board must justify and seek shareholders’ approval in the event it retains as an - independent director, a person who has served in that capacity for more than nine years
  34. 34. MCCG 2012 2007 Code Part 2 : AA II Chairman and Chief Executive Officer There should be a clearly accepted3.4 The positions of chairman and division of responsibilities at the head CEO should be held by of the company which will ensure a different individuals, and the balance of power and authority, such chairman must be a non- that no one individual has unfettered executive member of the powers of decision. Where the roles board are combined there should be a strong independent element on the board. A decision to combine the roles of chairman and chief executive officer should be publicly explained.3.5 The board must comprise a majority of independent - directors where the chairman of the board is not an independent Director
  35. 35. FOSTERPrinciple 4 COMMITMENT { Director should devote sufficient time to carry out their responsibilities, regularly update their knowledge and enhance their skills.
  36. 36. UPHOLD INTEGRITYPrinciple 5 IN FINANCIAL REPORTING The board should ensure financial statements are a reliable source of information.
  37. 37. MCCG 2012 2007 Code Part 2 : BB II The duties of the audit committee should 5.1 The Audit Committee include the following: should ensure financial (i) To consider the appointment of the statements comply with external auditor, the audit fee and any applicable financial question of resignation or dismissal reporting standards (ii) To discuss with the external auditor before the audit commences, the nature and scope of the audit, and ensure co-Principle 5 ordination where more than one audit firm is involved; (iii) To review the quarterly and year-end financial statements of the board, Uphold focusing particularly on–integrity in • any change in accounting policies 5.2 The Audit Committee financial and practices should have policies and • significant adjustments arising from reporting procedures to assess the the audit suitability and • the going concern assumption independence of external • compliance with accounting auditors standards and other legal requirements (iv) To discuss problems and reservations arising from the interim and final audits, and any matter the auditor may wish to discuss (in the absence of management where necessary)
  38. 38. MCCG 2012 2007 Code (v) To review the external auditor’s management letter and management’s response (vi) To do the following, in relation to the internal audit function– • review the adequacy of the scope , functions and resources of the internal audit function, and that it has the necessary authority to carry out its work • review the internal audit programme and results of the internal audit process and, where necessary, • ensure that appropriate actions are taken on the recommendations of the internal audit function • review any appraisal or assessment of the performance of members of the internal audit function • approve any appointment or termination of senior staff members of the internal audit function • take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning (vii) To consider any related-party transactions that may arise within the company or group (viii) To consider the major findings of internal investigations and management’s response (ix) To consider other topics as defined by the board.
  39. 39. RECOGNISE ANDPrinciple 6 MANAGE RISKS The board should establish a sound risk management framework and internal controls system
  40. 40. Recommendation 6.1The board should establish a soundframework to manage risks
  41. 41. Recommendation 6.2The board should establish an internal auditfunction which reports directly to the AuditCommittee
  42. 42. MCCG 2012 2007 Code Part I : D II Internal control 6.1 The board should The board should maintain a sound system of establish a sound internal control to safeguard shareholders’ framework to Investment and the company’s assets manage risks Part 2 : BB VII The board should establish an internal audit function and identify a head of internal audit who Principle 6 reports directly to the audit committee. The headRecognise and of internal audit will be responsible for the regular review and/or appraisal of the effectiveness of themanage risks 6.2 The board should risk management, internal control, and establish an governance processes within the company internal audit Part 2 : BB VIII function which The internal audit function should be independent reports directly of the activities they audit and should be to the Audit performed with impartiality, proficiency and due Committee professional care. The board or the audit committee should determine the remit of the internal audit function
  43. 43. ENSURE TIMELY ANDPrinciple 7 HIGH QUALITY DISCLOSURE Companies should establish corporate disclosure policies and procedures to ensure comprehensive, accurate and timely disclosures.
  44. 44. The board should ensurethat corporate disclosure policies and procedure. The board should encourage the company to leverage on information technology for effective dissemination of information.
  45. 45. STRENGTHEN RELATIONSHIPPrinciple 8 BETWEEN COMPANY AND SHAREHOLDERS The board should facilitate the exercise of ownership rights by shareholders
  46. 46. The board should take reasonable The board shouldsteps to encourage encourage poll shareholder voting participation at general meetings The board should promote effective communication and proactive engagements with shareholders
  47. 47.
  48. 48. TNB Annual Report 2011 (page 2)
  49. 49. TNB Annual Report 2011 (page 331)
  50. 50. TNB Annual Report 2011 (page 165)
  51. 51.
  52. 52. MCCG 2012 2007 Code 8.1 The board should take reasonable Part 3 : I steps to encourage Shareholder voting shareholder Institutional shareholders have a responsibility participation at to make considered use of their votes general Meetings Principle 8 8.2 The board should encourage poll Strengthen – voting relationship betweencompany andshareholders 8.3 The board should Part I : C I promote effective Dialogue between companies and investors communication Companies and institutional shareholders and proactive should each be ready, where practicable, to engagements with enter into a dialogue based on the mutual shareholders understanding of objectives
  53. 53. MCCG 2012 2007 Code Part 2 : CC I The relationship between the board and shareholders The boards should maintain an effective communications policy that enables both the board and management to communicate effectively with its shareholders, stakeholders and the public. This policy must effectively interpret the operations of the company to the shareholders and must accommodate feedback from shareholders, which should be factored into the company’s business decisions Part 3 : II Dialogue between companies and investors Institutional investors should encourage direct contact with companies, including constructive communication with both senior management and board members about performance, corporate governance, and other matters affecting shareholders’ interest
  55. 55. The UK Corporate Governance CodeUnited Kingdom UK incorporated companies listed on the UK Stock Exchange 5 Principle Section A: Leadership Section B: Effectiveness Section C: Accountability Section D: Remuneration Section E: Relations with shareholders
  56. 56. Business Roundtable (BRT)United Stated of AmericaAn association of chief executive officers of leading U.S.companies with over $6 trillion in annual revenues andmore than 14 million employees. 4 Sections Duty of the board of directors Responsibility of management Responsibility of the board Responsibility of the corporation
  57. 57. Nomination Committee AuditDirectors Committee
  58. 58. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATE1. INDEPENDENCE OF Principle 3 mention Combination of A substantial majorityDIRECTOR that the board should executive and non- of the boards have policies and executive directors directors procedures to (and, in particular, should be ensure effectiveness independent non- independent of independent executive directors) directors.2. THE ROLE OF Rec 3.4 -positions of should not be combining theCHAIRMAN AND chairman and CEO exercised by the positions of CEO andCHIEF EXECUTIVE should be held by same individual chairman different individuals -the chairman must be a non-executive member of the board3. ELECTION OF Rec 3.2 Non-executive The lead directorDIRECTORS -The tenure of an directors who have should be appointed independent director served longer than by the independent should not exceed a nine years should be members of the cumulative term of subject to annual re- board and should nine years. election serve for a period of at least one year.
  59. 59. 1. Independence of directors
  60. 60. 2. The role of chairman and chief executive
  61. 61. 3. Election of directors
  62. 62. 3. Election of directors
  63. 63. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATEAUDIT COMMITTEE MCCG 2007 (Part 2 UK CG2012 (C.3.1) US BRT CG2012 BB I) At least 3 at least three  at least three members members, who members Independent non- should all be majority of executive directors independent whom are At least one directors independent member of the audit consist of three to All members of committee has five members the audit recent and relevant At least one committee should financial experience member of the audit be non-executive committee should be directors. an audit committee Financially financial expert literate and at least one should be a member of an accounting association or body
  65. 65. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATENOMINATION MCCG 2012 UK CG2012 (B.2.1 , B.2.2 , US BRT CG2012COMMITTEE exclusively of non- B.2.4) executive directors Majority of independent  The corporate majority of whom non-executive directors governance must be A separate section of the committee (often independent. annual report should describe combined with or the work of the nomination referred to as a committee, including the nominating process it has used in relation committee) to board appointments. should have at least evaluate the balance of three members skills, experience,  should be independence and knowledge composed solely of on the board and, in the light independent directors of this evaluation, prepare a description of the role and capabilities required for a particular appointment.
  66. 66. Independent Directors Non independentDo not comply with requirement in US BRT CG2012 which state that themember of Nominating and Governance Committee shouldindependent.
  67. 67. Duties of Nominating and GovernanceCommittee
  68. 68. BUSINESS Why Need good Corporate Governance?STRATEGY Enhancement of Reduction of marketability of risk goods and services Stimulation of Improved performance leadership DemonstrationImproved access of transparency to capital and social markets accountability
  70. 70. Semester 1 (2008/2009)
  71. 71. AnswersTwo differences between a Unitary (Anglo- Saxon approach) and a Dual(Two-Tier structure) Board are: Unitary (Anglo- Saxon approach) Dual (Two-Tier structure)The governing body is comprised of a The governing body is comprised ofsingle board two separate boards; supervisory board and management boardExecutive and non-executive directors Executive and non-executive directorsoperate in one board operate in separate boardsThe committees of the board is The committees of the board ismandatory or recommended recommended
  72. 72. AnswerThe advantages and disadvantages for each approach are: Unitary(Anglo-Saxon approach) Dual (Two-Tier structure)Advantages: Advantages: Quick in making decision  Clear separation between operations and Direct contact between e executives and non- management executives that enables sound monitoring  Balancing the power of Chief Executive and counselling Officer (CEO) and board Chairman Efficient information flow and non-  Higher objectivity and independence, executives’ access to corporate data particularly in the process of management Reduction in possible fraud as wider evaluation, compensation policy involvement of NED in management  no personal connections enable sound monitoring and counsellingDisadvantages: Disadvantages: Powerful position of Chief Executive Officer  Higher costs of board functioning (CEO) who holds Chairman function  Poor information flow and non-executives’ Dependence on CEO policy, lack of access to corporate data objectivity  lack of direct contact between executives Risk of building a coalition and non-executives between CEO and outside directors  Risk of dominating the board by majority (evaluation of board work, resisting to shareholder takeovers)
  73. 73. d) How many time audit committee need to meet withExternal auditor without BOD. Why? The committee should meet with the external auditors without executive board members present at least twice a year. This encourages a greater exchange of free and honest views and opinions between both parties without the intervention of executive director or other parties that have the interest towards the entities. It shows that independency between audit committee and executive director. So they can conduct their duty respectively. To avoid External Auditor involved in non-audit services
  74. 74. e) There have been a number of high profile corporate failures despitethe fact that the financial statement is being annually audited and thecompany seems to have good corporate governance. This is because ofi. Auditor conflicts of interest - Auditing firms, the primary financial "watchdogs" for investors, were self- regulated. They also performed significant non-audit or consulting work for the companies they audited.ii. Boardroom failures - Board members who either did not exercise their responsibilities or did not have the expertise to understand the complexities of the businesses. In many cases, Audit Committee members were not truly independent of management.