Report Sime Darby
Report Sime Darby
Report Sime Darby
The corporate sector in Malaysia has grown rapidly and steadily since the 90s. The total market capitalization of listed companies on the main and second boards of the Malaysian stock exchange has grown by an average of 40% per year throughout this period (KLSE, 2002). The government has taken many initiatives to properly govern Malaysian corporate sector in line with its growth. Currently, the Malaysian capital market is governed by the Acts of Parliament such as Capital Market and Services Act 2007, Securities Industry (Central Depositories Act) 1991, Securities Commission Act 1993 and Companies Act 1965. The two main agencies that regulate the Malaysian capital market are Securities Commission Malaysia (SC) and Bursa Malaysia. However there are other bodies like Malaysia Institute of Corporate Governance (MICG) and MAICSA that support creating value corporate governance. However, this paper will mainly study two agencies namely Securities Commission Malaysia and Malaysia Institute of Corporate Governance and their roles in preventing corporate fraud in Malaysia particularly in the case of Sime Darby corporate scandal in 2010.
SC reports to the Minister of Finance and tables its accounts annually in Parliament. According to the SC website (2012), the Commission's regulatory functions include supervising exchanges, clearing houses and central depositories, registering authority for prospectuses of corporations other than unlisted recreational clubs, approving authority for corporate bond issues, regulating all matters relating to securities and futures contracts, regulating the take-over and mergers of companies and all matters relating to unit trust schemes, licensing and supervising all licensed persons, encouraging self-regulation and
ensuring proper conduct of market institutions and licensed persons. In short, SC has broad powers to make rules, interpret rules, investigate and enforce rules relating to securities while regulating the conduct of brokers, dealers, investment advisers and their representatives, the exchanges, public companies and its participant (Zainal Abidin & Hashim, 2010).
SC works with other regulatory bodies and authorities such as the Insolvency Department of Malaysia, Bank Negara Malaysia, BURSA Malaysia, MCCA and related government agencies, to ensure that good corporate governance is practiced by the market players. SCs ultimate responsibility is to protect investors. Its enforcement and legislation is divided into four sections, which are criminal prosecution, civil actions, administrative actions and cases compounded. For instance, criminal prosecution and civil actions will be cases that SC brings forward to court while the administrative actions will be the warning, revamp or revoke of license. For cases compounded are less serious offences where SC will offer certain amount of compounds (penalties in monetary terms) and warning letter (Sadique, Roudaki, Clark & Alias, 2010).
of service may prejudice a directors ability to act independently and not in the best interest of the company. SC should also stress on the formalization of Board Charter in annual reports. The main purposes of having formalized board of charter in annual reports which include roles of board, board function, ensuring efficiency and processes of boards are to set out key values, principles and ethos of the company, to disclose the decision and responsibilities and power between board and the difference committees established by the board, the chairman and CEO, to act as reminder of boards role and responsibilities as well as to be a guideline to BOD to assess its performance. Simultaneously, this will highlight any issues or conflicts the board are unable to resolve and review what actions should be taken be it tactical or strategic.
is also known as The Recognized CG Training Centre (CGTC) in Malaysia. (Zulkafli, Abdul Samad & Ismail, 2008) The objectives of MICG establishment are to be the leading organization for enhancement of CG development and best practices, to establish linkages and networking with the leading CG references and research organizations, to be authoritative facilitator for advisor, technical and support services, to work closely with various shareholders as well as company directors and to complement the regulators (SC, CCM & Bursa Malaysia), to act as an independent body to conduct CG rating and ensuring the ratings credibility & to be independent, fair and truthful in providing input or information to enhance the performance of public listed companies to intended investors from within and outside Malaysia.
MICGs Achievements
Over the years, MICG has been conducting many seminars and talk over CG to raise awareness of the importance of CG to Malaysian organizations. Other than that, MICG has been doing numerous researches and publications of papers and books over the area of CG for example The Corporate Governance in Malaysia by Zulkafli, Abdul Samad & Ismail. MICG has also formed alliances with UiTM, BizAid Technologies Sdn Bhd , ISI, Marcus Evans, ICC Consultant Centre, IBC Asia Ptd Ltd & IDEA.net. These are active partners of MICG in conducting researches in CG practices in Malaysia, developing IT system for CG purposes, conducting CG related consultancy services and promoting CG practices through seminars and talks (MICG website, 2011).
of the companies in the focus list on the issues because some institutional investors might not be aware of the underperformances of their invested companies (MCCG, 2012& MCCG Blue Print, 2011). MICG can also initiate the movement of industry driven umbrella body for institutional investors by bringing together the collective voice of institutional investors under one umbrella. This action will give them a better platform to address impediments and seek solutions especially in their investment companies mismanagement issues. MICG can encourage public listed companies to have more independent directors to sit in the board. This is in line with the research resulted in Blue print 2011, the companies which are having more than 33% independent board of directors tend to perform better financially. MICG can also discourage duality where the same person is discouraged from becoming chairman and BOD at the same time. Simultaneously, the tendency of power centrality and abused by one single person can be reduced. MICG can encourage public companies to sign Corporate Integrity Pledge with Malaysian Integrity Institute. Sime Darby has signed the pledge in 9th June 2011. Until March 2012, there is 71 companies have done the same. Upon signing, MACC will act as secretariat to co-ordinate and assist the implementation of the pledge. Companies will develop their own self regulating system to prevent mismanagement and corruptions with the help of MACC and Malaysian Integrity Institute.
Conclusion
Corporate governance builds trust and creates sustainable stakeholder value (Demise, 2005). Poor corporate governance practice has been linked with the scandal of Sime Darby. Creating a value governance will only be successful if CG practices exist with all the 5 factors of accountability, fairness, independency, transparency and responsibility are truly upheld in the organization management team. A good CG cannot be achieved merely on the strength of regulations; it needs to have a fully functioning self and market disciplinary mechanism where all the shareholders proactively assume their responsibility to instill CG culture in the organization. SC and MICG can only do so much to govern and enhance the behaviors of companies, but the agent of changes and the successful determinant is the companies themselves.
References
1. Demise, N. (2005), Business Ethics and Corporate Governance, Business Society, 44(2):211-217 2. Corporate Governance Blue Print 2011., Retrieved from http://www.sc.com.my 3. KLSE. (2010), KLSE-Price Waterhouse Coopers Corporate Governance: 2002 Survey of Public Listed Companies in Malaysia (2002), Kuala Lumpur, Malaysia: Kuala Lumpur Stock Exchange (KLSE) 4. Malaysian Code of http://www.sc.com.my Corporate Governance 2012., Retrieved from
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6. Malaysia Institute Corporate Governance (MICG) website., Retrieved from http://micg.org.my/cgresourcecenter.htm 7. Mohamed Sadique, R., Roudaki, J., Clark, M.B. & Alias, N. (2010), Corporate Fraud: An Analysis of Malaysia Securities Commission Enforcement Releases, World Academy of Science, Engineering and Technology 66 2010, p.1216 8. Sime Darby Corporate Governance Action Plan/Report., Retrieved http://www.simedarby.com/upload/Sime_Darby_Corporate_Governance.pdf from
9. Zainal Abidin, Z. & Hashim, A.S. (2010), Corporate Governance of the Company Secretary, UITM Shah Alam: University Publication Centre (UPENA) 10. Zainal Abidin, N.A, Ahmad H@A., (2007), The Effect of Corporate Reform and State Business Relation in Malaysia, Asian Academy of Management Journal, Vol.12, No 1, 23-24, January 2007. 11. Zulkafli, A.H., Abdul Samad, M.F. & Ismail, M.I. (2008), Corporate Governance In Malaysia, pp. 6-8