9 Good Governance

GOOD
CORPORATE
GOVERNANCE
Corporate Governance
The system by which business corporations are
directed and controlled. Its structure specifies the
distribution of rights and responsibilities among
different participants in the corporation (board,
managers, shareholder and other stakeholder), and
spells out the rules and procedure for making
decisions on corporate affairs. It also provide the
structure through which the company objectives
are set, and the means of attaining those
objectives and monitoring performance.

(Clarke,T, 2005)
Introduction
Corporate Governance is concerned with: The way corporate entities are governed.
Addresses the issues facing board of
directors, such as: Interaction with top management,
Relationships with the owners and
others interested in the affairs of the
company (creditors, financiers, analysts,
auditors, corporate regulators),
Concern about corporate

performance through
involvement with strategy
formulation and policy making.
Concern about corporate
conformance through top
management supervision.
Accountability to stakeholders.
The primary role of corporate governance

participants:-
Protecting shareholders
Restoring investors confidence
Supporting strong and efficient
capital markets
Ensures corporate
accountability
Enhances the reliability and
quality of public financial
information
Corporate Governance is ultimately

about leadership and accountability: For efficiency and effectiveness of
operations to compete in the
markets.
For disclosure of accurate,
complete, and transparent
information regarding corporate
performance in areas of economic
and social activities.
Transparent in ensuring
trustworthiness of the corporations.
CG is an umbrella term that includes specific

issues arising from those interactions:
Shareholder
Senior
Management
Boards of
Directors
Other Stakeholders
Implications
Has wider implication and is critical to economic

and social well-being:-
i) Providing incentives and

performance measures to achieve
business success
ii) Providing accountability and
transparency to ensure the equitable
distribution of the resulting wealth
Theories of Ideas in
In the Company Law, governance is based on
the belief that: Stewardship (of the company) will be
exercised by the directors to whom the
company has delegated responsibility and
authority, with appropriate responsibility.
It is predicted on the belief in the just and
honest men, acting for the good of others,
under the law.
Issues in
Corporate
Governance
The massive use
of corporate
form in modern business has
become over-extended and
needs a clearer
understanding.
Some major issues that have
arisen:-
The Emergence of Private Companies

Incorporations are used principally to
raise outside/external capital.
In todays term, it is known as public
companies that is permitted to offer
their shares to the public.
However, there are so many private
companies in existence nowadays, such
as family firms.
Growth of these companies come from
retained earnings, and not public
subscriptions.
The Scale and Complexity of Corporate

Groups
Corporate entity could acquire shares in
other companies.
Company mergers and asset acquisitions
are common.
All major corporations nowadays trade
through groups of subsidiary and
associated companies.
In some cases, these groups are relatively
simple with small hierarchy of wholly
owned companies under a common parent
company.
The Significance of Institutional Investors

Institutional investors, such as banks,
trusts, and provident/pension funds, have
become a significant influence on the
corporation.
With huge market capitalization on many
stock exchanges, these investors have
shown a tendency to wield influence
through formal participation in shareholder
matters, and direct contacts with directors.
This could prejudice the rights of other
shareholders to equal treatment.
Calls for more Checks and Balances at

Board Level
Demand for greater

independence at Board level
with an audit committee.
This audit committee to
liaise with external auditors.
Corporate
Governance
Principles
Several Corporate
Governance Principles: Honesty
Resilience
Responsiveness
Transparency
Honesty
Telling the truth at all times, regardless of
the consequences.
Important, in establishing a trusting
relationship among corporate governance
participants.
Also means, corporate communication
with external and internal audiences,
including public financial reports, should
be accurate, fair, transparent, trustworthy.
A reputation for honesty can be earned

through truthful and transparent corporate
communication.
It can also be easily destroyed through lies,
deception, concealments, fraud.
In todays ICT world, access to verifiable
information on corporate trustworthiness
and honesty is easily and conveniently
available.
Thus, public companies should maintain
honesty and good reputation.
Resilience
Resilient corporate governance
structure is sustainable and enduring in
the sense that, it will easily recuperate
from setback and abuses.
Corporate governance mechanisms are
designed to prevent, detect, and correct
abuses.
Responsiveness
The companys appropriate responses to
the requests / desires of all stakeholders
show that the company has respect for
concerns and interests of others.
Effective corporate governance is also
responsive to emerging initiatives and
changes in political, regulatory, social,
and environmental issues.
Transparency
It means that the company is not hiding
relevant information.
Disclosures are fair, accurate, and
reliable.
Transparent corporate governance is
open and understandable to all
concerned, in terms of its goals,
principles, mechanisms, and functions.
CODE OF CORPORATE
GOVERANCE FOR MALAYSIA
The Malaysian Code on Corporate

Governance was developed by the
Working Group on Best Practices
in Corporate Governance
MICG
BMLR
The Code aims: To set out principles and best practices

on structures and processes that
companies may use in their operations
towards achieving the optimal
governance framework.
These structures and processes include the
issues such as: The composition of the Board,
procedures for recruiting new directors,
remuneration of directors, the use of
Board committees, their mandate and
activities.
The significance of the Code: It allows for a more constructive

and flexible response to raise
standards in corporate governance.
It recognizes the fact that there are
aspects of corporate governance
where statutory regulation is
necessary, but other aspects are
self-regulated and complemented
by market regulation.
The Approach Under The

Malaysian Code On
There are 3 broad approaches to the issue of

corporate governance that have been
undertaken by jurisdictions around the
world:-
Prescriptive Approach
Non-Prescriptive Approach
Hybrid Approach
A PrescriptiveA Non-Prescriptive The Hybrid

Approach
Approach
Approach
standard of
Combination of the
corporate Governance approach that simply
first two
is set by specifying
requires CG practices
desirable practices
in a company to be
Need for the
coupled with the
disclosed without
requirement to disclose specifying any standard prescribing particular
principles & structure
compliance with them.
and should then apply
these flexibly
CHALLENGES TO
CORPORATE GOVERNANCE
The implementation of a high

standard in corporate
governance is the most primary
evaluation and attraction of
foreign direct investment (FDI)
to keep investing in the capital
market in Malaysia.
To have a systematic joint

collaboration among corporate
governances supervising
agencies upon the
understanding and the usage
of The Code of Corporate
Governance by public
companies in upgrading the
investors trust.
The role of NGOs such as

Minority Shareholder
Watchdog Group (MSWG) as
the interested party in
corporate governance has to
be given a chance and wider
role in check & balance
practice, in order to protect
the shareholders rights.
Periodic monitoring on the

usage and practices of good
corporate governance should
be made upon all public
listed companies and
Government-linked
companies (GLC), so that the
rights of all interested
parties are protected.

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GOOD

objectives and monitoring performance.

Concern about corporate

The primary role of corporate governance

Corporate Governance is ultimately

CG is an umbrella term that includes specific

Has wider implication and is critical to economic

i) Providing incentives and

The Emergence of Private Companies

The Scale and Complexity of Corporate

The Significance of Institutional Investors

Calls for more Checks and Balances at

Demand for greater

A reputation for honesty can be earned

The Malaysian Code on Corporate

The Code aims: To set out principles and best practices

The significance of the Code: It allows for a more constructive

The Approach Under The

There are 3 broad approaches to the issue of

A PrescriptiveA Non-Prescriptive The Hybrid

The implementation of a high

To have a systematic joint

The role of NGOs such as

Periodic monitoring on the

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