Corporate Governance in Malaysia

Corporate Governance is a concept in which it has been liveence for decades although not in the ex personation form that it has have to be infrastood today (Anandarajah, 2001). The term in corpo real numberd organisation was introduced in Malaysia in 1997 during the Asian Financial Crisis. It in any theme drew the publics trouble on the weaknesses of the Malayan unified brass section pr stand forice (Nor Azizah Zainal Abidin, 2007). as well that, the downf each of Sime Bank, the Bumi rearera Malaysian Finance (BMF) outrage, the ir mendingities in Renong Berhad, the Perwaja fiasco and the internal wariness problem confront by Malaysian Airline System (MAS) forced government activity to invoke incorporated political science regulations (Norwani, Mohamad, & Chek, 2011).The High Level Finance Committee declargon 1999 on Corporate Governance in Malaysia defined corporate face as the process and structure used to direct and manage the barter and affairs of the company t owards enhancing blood prosperity and corporate accountability with the final objective of realizing long term shareholder value, whilst taking into account the gratify of other stakeholders. (Malaysian Code on Corporate Governance, 2012). The grave that governs the corporate administration in Malaysia is called the Malaysia Code of Corporate Governance (MCCG).This engrave was recently revise in March 2012 and it is known as the MCCG2012. Besides providing relevant learning to investors, this code overly aims to encourage hydrofoil management of companies, to enable investors to contain the direction of the company (Nor Azizah Zainal Abidin, 2007). The MCCG 2007 was rewrite with the aim to enhance the directors duty to the companies. With the revise MCCG 2012, t here(predicate) are still many an(prenominal) issues arising from corporate disposal. However, to some boundary there are progressions in some area of the corporate governance.The revised MCCG 2012 contained a fewer repairments in the recommendation. This Code now establishes clear roles and responsibilities where honourable standard should be formalized through the code of conduct by the get on with to picture its compliance. Through the companys code of conduct, it mandates the scoop upride to formulate system of compliance and ethical standards. Besides, it also let ins ensuring that the companys strategies conjure up sustainability. There are many improvements made under pecuniary backing of independence. 3. 1 mandate bill of fares to undertake an annual indie director assessment.For an idiosyncratic to serve as an unconditional director, 3. 2 mandate a accumulative term to nine years. Under 3. 3, justification and shareholders cheering is needed if the board retains as an independent director. And lastly MCCG 2012 recommends that a bulk of independent directors must be in the board and the board prexy is not an independent director. These were not in the MCCG 2007. The most eventful improvement under the MCCG 2012 is to ensure timely and high quality apocalypse. Under this the board should make authoritative the appropriate disclosure procedure and policies of the company.Also, for effective spread of information, board should encourage the company to leverage on information technology. This is to promote better use of technology. Further more than, with the existing recommendation, MCCG 2012 also state that the board should also encourage pool voting in order for strengthening the consanguinity f the company and shareholder. This imposes duty to inform the shareholders of their right to demand a poll vote by the general meeting chairman. The concern here is whether the revised MCCG check compound the corporate governance of the companies in Malaysia.This code calls for voluntary compliance, coupled with the requirement in the tilt rules of KLSE which make mandates disclosure of the extent of compliance with the best practice sets out in the Code, magical spell allowing for some flexibility in its implementation by companies. The aim here is to furnish necessary information and encourage disclosure to investors who entrusted their funds to companies, so that they target monitor the way it is being run (Finance Committee on Corporate Governance, 1999). This Code has somehow reduced the number of pecuniary s domiciliatedal 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 legal philosophy governing directors duty consist of various forms of law. These duties have been observed also contain a plurality of legal field such as company law and employment law (Hee, 2003). portion 132(1) of the Companies Act 1965 requires a director to use reasonable diligence and to act h unmatchedstly in the discharge of his duties. The duty to act in the best interest of the company as a who le also from plebeian law covers the collective interest of both existing and prospective shareholders.It is suggested that the joint law fiduciary duty to avoid conflicts of interest should be systemise 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 canvasor actually provides a check on the information limit 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 e xternal auditor. The grandeur of an audit committee in the framework of corporate accountability is where audit committees are expected to act as the guardian of investors interests and corporate accountability suggested by the wide espousal of audit committee (Saidin, 2007).The main duties are to inspect and form an position as to whether the financial argumentations have been drawn up in accordance of rights with the financial reporting standards of Malaysia and the Companies Act 1965 to obtain reasonable assurance that the financial statements are free from material misstatements and to examine and form an opinion whether the financial statements give a true and fair view of the financial position of the Company as of the financial year end and of its financial surgical process and cash flows of the year end (Yycadvisors, 2012).The pertinent issue in corporate governance is due to mismanagement, directors duty not thoroughly performed, abusing the minority projection / sha reholders and not having meetings often to update what is going on. oversight or board should practice the commonly accepted principles of corporate governance such as independence, accountability, roles and responsibilities, integrity and ethical behavior, and transparency. A companys board should have a number of independent directors. They should be respective(prenominal) with no connection with the company other 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 likely to maintain their independent mindedness (Rahman & Salim, 2010). To create a system that holds decisiveness makers accountable while match proper respect to their authority over corporation is a challenge thing for corporate governance. The market, shareholder voting, and civil and criminal liability is the regular accountability mechanism.In t heory, to create incentives for deterring self-dealing and other forms of misconduct and for responsible decision qualification these mechanisms work together. However, in reality, these contain flaws that allow individuals to occasionally exercise an preposterous 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). Given the obtain 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, protecting 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 creditable assurance that they will abs tain 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 influenced by the board of directors. In disclosing all the relevant information in the financial reporting, the BOD will be straightforward 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 prepared with integrity which relies on corporate governance. Dependency of the integrity of financial reporting is highly on the execution of instrument and conduct of individual involved. What lead the company to reporting hardship is when the cor porate governance fails where most of them manipulated their financial statement to meet the performance 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 bread manipulations (Norwani, Mohamad, & Chek, 2011). Problems that arise in companies in Malaysia regarding corporate governance have to do with the political interference to certain extent. State/government can be said as the real company controller compared to law/policy regulated under corporate governance. For example, the famous corporate governance failure in Malaysia the scandal of Perwaja vane Sdn.Bhd.. Perwaja, a company owned by the government in collaborationism with a Japanese company, Nippon Steel Corporation that was established by HICOM Bhd. in 1982, to fulfill the governments mission 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 existence of this relationship. collectible to the misconduct of directorship the corporate governance of Perwaja snap offd.Perwaja faced with corruption and mismanagement in tender and contract awarding. Furthermore, indistinct trading transactions and payments were carried out to non existing companies (Netto, 2004). There are one sided contracts between Perwaja and both local and extraneous 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 new-made funds being injected by the government today, Perwaja is still in handicraft (Netto, 2004).In other case, like the Malaysian Airlines System Bhd. (MAS) faced with internal management problems. Tan Sri Tajuddin Ramli, the largest shar eholder in MAS who held both Chief Executive officer plus with chairman position, entered into unprofitable wrinkle activities whereby he had over magnification 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 huge debts, prior to the Asian Financial Crisis.This had put MAS at risk during the crisis as all their transaction were done 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 popular destinations or little concentrated areas were decided by the government. This decision contributed lower return to MAS.From this blame of view, we can see that the government/political involvement in business h ave a huge influence in the management of the company. Besides another reason of governance 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 stipendiary 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 barter forback, why an audit was not conducted which would have a very important bearing on the proper price of the government buyout. An international case study 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 formulation up the account book. The CEO was responsible for the board accounting improprieties that d escribe a large amount of cash holding that does not exist and overstating the companys profit and revenue.With a successful effort 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 magnification on Satyams part, which in turn led to a collapse in companys stock prices, followed by a shocking confession from Raju. History has played a part in the tuition of corporate governance in India. The first code for corporate governance was published in 1988, but by the Confederation of Indian perseverance (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 effective, 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 1999 a government committee released Indias depicted object 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, lotion the composition of the boards, audit committees, accounting standards and risk management (Ticker, 2009). However, corruption carcass 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 speedy economic growth and potential in India suggest that the next few years will see significant changes in both perspective 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 ? nancial 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.