SC Releases New Malaysian Code on Corporate Governance to Strengthen Corporate Culture
Securities Commission Malaysia (SC) today released the new Malaysian Code on Corporate Governance (MCCG), a set of best practices to strengthen corporate culture anchored on accountability and transparency.
The new MCCG places greater emphasis on the internalisation of corporate governance culture, not just among listed companies, but also encourages non-listed entities including state-owned enterprises, small and medium enterprises (SMEs) and licensed intermediaries to embrace the code.The code has 36 practices to support three principles namely board leadership and effectiveness; effective audit, risk management, and internal controls; and corporate reporting and relationship with stakeholders.
A key feature of the new code is the introduction of the Comprehend, Apply and Report (CARE) approach, and the shift from “comply or explain” to “apply or explain an alternative”. This is meant to encourage listed companies to put more thought and consideration when adopting and reporting on their corporate governance practices.
The MCCG also adopts a differentiated and proportional approach in the application of the code taking into account the differing size and complexity of listed companies. The code now identifies certain practices and reporting expectations to only apply to companies in the FTSE Bursa Malaysia Top 100 Index, and those with a market capitalisation of RM2 billion or more.
Another new dimension in the code is the introduction of ‘Step Up’ practices to encourage companies to go further in achieving corporate excellence. This includes the practice which requires Audit Committee to comprise only of independent directors and the establishment of a Risk Management Committee.
The new MCCG is the result of a comprehensive review by SC in 2016 drawing inputs from domestic and international stakeholders, lessons from past and recent corporate governance failures and changes in market structures and business needs. The code, which was first introduced in 2000 following the recommendations made by the High Level Finance Committee in 1999, had been reviewed twice in 2007 and 2012.
Alongside the MCCG, SC also announced a three-year strategic plan to advance key corporate governance priorities, which includes:
Strengthening the ecosystem: SC will work with stakeholders to establish the Institute of Corporate Directors Malaysia (ICDM) to provide a professional development pathway for directors. A Corporate Governance Council will be established to coordinate all corporate governance initiatives.
Leveraging technology: SC will deploy big data and artificial intelligence capabilities to strengthen its corporate surveillance and enforcement capabilities. The SC will work with the fintech community to:
– facilitate electronic voting and remote shareholders participation; and
– develop an online platform for monitoring and reporting of corporate governance practices.
Promoting gender diversity on boards: SC will collaborate with industry groups and stakeholders to increase women’s participation in boards of the top 100 companies on Bursa Malaysia from 16.8% currently, to 30% by 2020.
Embedding corporate governance culture early: SC will collaborate with relevant stakeholders to develop a corporate governance toolkit for SMEs to ease them into embracing good governance practices. A similar framework for licensed and registered capital market intermediaries will also be introduced. SC will also collaborate with tertiary institutions to introduce corporate governance in their curriculums to shape future corporate leaders with high ethical standards.
The MCCG takes effect from 26 April 2017, and the first batch of companies that are expected to report their application of the practices in the new code will be those with financial year ending 31 December 2017.
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