Managing Privatization

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Managing Privatization
Malaysian Technical Cooperation Programme (MTCP)
12 July 2006
Bilik Kuliah B2, Aras 1, Blok B, INTAN, Bukit
Kiara
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MICG
Malaysian
Institute of
Corporate
Governance
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Corporate Governance in Malaysia

• By
• Dato Shahran Laili Abdul Munid
• Chief Executive Officer / Executive Director
• Malaysian Institute of Corporate Governance (MICG)

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What is Corporate Governance?

• Corporate governance is the process and
  structure used to direct and manage the business
  and affairs of the company towards enhancing
  business prosperity and corporate accountability
  with the ultimate objective of realising
  long-term shareholder value, whilst taking into
  account the interest of other stakeholders.
• Malaysian definition as per Finance Committee on
  Corporate Governance
• (Report On Corporate Governance, February 1999)

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• Good governance is not simply about corporate
  excellence. It is the key to economic and social
  transformation. The corporation of today are no
  longer sheer economic entities. These are the
  engines of economic and social transformation.
• -Dr Madhav Mehra
• President of World Council For Corporate
  Governance

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.According to Anglo-Saxon definition, Corporate
Governance refers to the set of mechanisms
designed to maintain an appropriate balance
between the rights of shareholders and the need
of the Board and Management to direct and manage
the corporations affairs and ensure the company
optimises over time the returns to
shareholders - Mc Kinsey Company

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Corporate Governance is the system by which
companies are directed and controlled. Board of
directors are responsible for the governance of
their companies. The shareholders role in
governance is to appoint the directors and the
auditors and to satisfy themselves that an
appropriate structure is in place. -Cad
bury Report 1992
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Fairness
Accountability
Transparency
Responsibility
Fundamental Pillars of Corporate Governance
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Definition of the Fundamental Pillars of
Corporate Governance

• Accountability
• Clarifying governance roles responsibilities,
  and supporting voluntary efforts to ensure the
  alignment of managerial and shareholder interests
  and monitoring by the board of directors capable
  of objectivity and sound judgment.
• Transparency
• Requiring timely disclosure of adequate
  information concerning corporate financial
  performance

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continuation

• Responsibility
• Ensuring that corporations comply with relevant
  laws and
• regulations that reflect the societys values
• Fairness
• Ensuring the protection of shareholders rights
  and the enforceability of contracts with
  service/resource providers

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Corporate Governance in Malaysia
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Chronological Sequence of Corporate Governance
in Malaysia
24 March 1998 Government announces formation of
high level Finance Committee re-establishing
framework for Corporate Governance
5 February 1999 Final Report on Corporate
Governance by Finance Committee submitted to the
Minister of Finance
25 March 1999 Malaysian Code of Corporate
Governance was launched
March 2000 Amended Malaysian Code of Corporate
Governance was released
1 July 2001 Kuala Lumpur Stock Exchanges (Bursa
Malaysia) Revised Listing Requirements comes into
force (Emphasis on Corporate Governance)
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Who monitor Corporate Governance in Malaysia

• Regulators
• Securities Commission , Bursa Malaysia,
  Companies Commission of Malaysia.
• Institutes
• MICG, MSWG,MAICSA,MIA, MICPA , IIM , MIM etc.

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Role of MICG

• MICG is committed to working with regulators,
  professional associations and other stakeholders
  to strengthen corporate governance best practices
  and the upload its principles

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THE MALAYSIAN CODE ON CORPORATE GOVERNANCE
Launched on 25 March 1999 by The Ministry of
Finance Amended March 2000
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Malaysian Code on Corporate Governance
PART 1 Principles of Corporate Governance
Directors Remuneration
Directors
Shareholders
Accountability Audit

• Level Make Up of Remuneration
• Procedure
• Disclosure

• The Board
• Board Balance
• Supply of Information
• Appointments to the Board
• Re-election

• Dialogue between companies investors
• Annual General Meeting

• Financial Reporting
• Internal Control
• Relationships with Auditors

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Example of Part 1

• Companies will be required by the listing
  requirements of the Bursa Malaysia to include in
  their annual report a narrative statement of how
  they apply the relevant principles to their
  particular circumstances. This is to secure
  sufficient disclosure so that investors others
  can assess companies performance governance
  practices and respond in an informed way.

Example The Board of Directors (Board) of PLUS
Expressways Berhad (PLUS Expressways or the
Company) has always upheld a high standard of
corporate governance to safeguard the interest of
all stakeholders, which include customers,
shareholders and investors, employees, and the
community. The Board is fully dedicated to
ensuring that the structure and procedures to
support excellent corporate conduct will continue
to exist, not only in their present form, but
will continually be enhanced and fortified. This
statement sets out the commitment of the Board
towards good corporate governance principles and
the extent to which it has complied with the best
practices of the Code on Corporate Governance
(Code) throughout the financial year ended 31
December 2004. (excerpt from PLUS Annual
Report 2004)
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Malaysian Code on Corporate Governance
PART 2 Best Practices in Corporate Governance
The Board of Directors
Accountability Audit

• Principal responsibilities of the Board
• Constituting an effective board
• Size of non-executive participation
• Board structures procedures
• Relationship of the board to management

Shareholders

• The audit committee

• The relationship between the board shareholders

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Malaysian Code on Corporate Governance
PART 3 Principles Best Practices For CG
Shareholder Voting
Evaluation of Corporate Governance
External Auditors
Dialogue between Companies Investors
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Malaysian Code on Corporate Governance

• PART 4 Explanatory Notes of
• Part 1 Principles of Corporate Governance
• Part 2 Best Practices in Corporate Governance
• Part 3 Principles Best Practices for other
  Corporate Participants

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Summary of The Malaysian Code on Corporate
Governance

• Principles
• Part 1 sets out broad principles of good
  corporate governance in Malaysia. The objective
  is to allow companies to apply these in a
  flexible manner with common sense to the
  varying circumstances of individual companies
• Best Practices in Corporate Governance
• Part 2 sets out best practices for companies. It
  identifies a set of guidelines or practices
  intended to assist companies in designing their
  approach to corporate governance

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continuation

• Exhortations to other participants
• Part 3 is not directed at listed companies but
  at investors and auditors to enhance their role
  in corporate governance. They are purely
  voluntary.
• Explanatory notes mere best practice
• Part 4 provides explanatory notes to the
  principles and practices set out in parts 1,2 and
  3. Part 4 also sets out best practices directed
  at listed companies that do not require companies
  to explain circumstances justifying departure
  from best practices mere best practices.

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Benefits of Good Corporate Governance

• ON THE ECONOMY
• Revitalizing market economy
• Sustainable economic growth
• Positive development on capital market, more
  globally competitive
• Increasing competitiveness through fair
  competition

• ON THE CORPORATION
• Increasing firm value
• Lowering cost of capital
• Enhancing capital efficiency
• Protection of shareholders rights

IMPACT OF GOOD CORPORATE GOVERNANCE

• ON SOCIETY
• More open, transparent society
• Corruption prevention
• Rule of law fair orderly
• Promoting ethical wealth creation

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Benefits of Good Corporate Governance
Risks minimised over long term
More institutional investors are attracted to
invest in PLCs
More equity participation from Government agencies
Attract more individual investors for long-term
investments
Higher sustainable market capitalisation
More activities in equity market
Capital market reacts positively, becomes more
dynamic
More economic activity EVERYONE benefits
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Corporate Governance Ranking by Countries 2002

• Singapore
• Hong Kong
• Mexico
• India
• S Africa
• Taiwan
• Chile
• Peru
• Brazil
• Argentina
• Turkey
• Korea
• Malaysia
• Greece
• Venezuela

Source Bloomberg, CLSA Emerging
Markets Excerpt CG Watch, Corporate Governance
in Emerging Markets February 2002
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Rankings of Top 10 Public Listed Companies in
Malaysia Based on CG Reporting Scores

• PLUS Expressways
• IOI Corporation
• Petronas Dagangan
• Highland Lowlands
• PPB Group (Property Management)
• Public Bank
• Kumpulan Guthrie
• Telekom Malaysia
• Maxis Communications
• Puncak Niaga Holdings
• Source Corporate Governance Reporting Initiative
• (Corporate Governance Reporting of Top 100 Public
  Listed Companies in Malaysia )
• July 2004

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MICG Publications on Corporate Governance

• Malaysian Code on Corporate Governance
• Corporate Governance An International
  Perspectives
• Essential of Corporate Management
• 3R's of Corporate Governance
• Independent Director Perceptions, Roles and
  Responsibilities

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CONCLUSION

• Be true to
• Yourself
• Your Family
• Your Organization
• Your Country

As the crab teaching the baby crab to walk
straight
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