Regulating the Malaysian Capital Market

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Developments in Malaysian Corporate
Governance The Regulatory Perspective
Nik Ramlah Mahmood
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Agenda

• Overview of Reform Agenda
• The Rights and Equitable Treatment of
  Shareholders
• The Role of Stakeholders in Corporate Governance
• Disclosure and Transparency
• The Responsibilities of the Board
• Other Initiatives
• Way Forward

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Malaysia has a strong legal and institutional
framework for corporate governance
Legal framework based on traditions of common law
legal system
Comprehensive array of statutes
Supported by traditional common law remedies
Established institutions like courts and
regulatory agencies
Overview of Reform Agenda
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Even prior to the crisis the basic regulatory
framework was being continuously reviewed and
updated
Move to Disclosure Based Regulation (DBR)
Strengthening Accounting Standards Financial
Reporting Foundation (FRF) Malaysian Accounting
Standards Board (MASB)
Review of Takeovers and Mergers Code
Strengthening insider trading laws
Requirement for independent directors audit
committee
Overview of Reform Agenda
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A three-pronged approach was adopted after the
crisis
Swift implementation of measures to address
specific weaknesses
Finance Committee Report on Corporate Governance
1999
A holistic approach to address medium to longer
term issues
Pursuit and review of on-going programmes
Capital Market Masterplan 2001
Overview of Reform Agenda
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Rights And Equitable Treatment Of Shareholders
Common law and statutory remedies are
continuously enhanced

• Related party substantial property transactions
  enhanced disclosure approval requirements
• Revamped Takeovers Mergers Code
• Proposed codification of directors fiduciary
  duties

• Existing common law statutory protection
• Directors fiduciary duties
• One share one vote rule
• Shareholder rights at AGM
• Related and substantial party transactions
• Oppression remedy
• Common law Derivative Action

Shareholder Activism formation of Minority
Shareholder Watchdog Group (MSWG)

• Proposed best practices for institutional
  investors
• Statutory derivative actions
• Cumulative voting being studied

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Role of stakeholders and other enforcers
Stakeholders and other enforcers must play
their role..
Watchdogs Gatekeepers Regulators Profession
als Investors Corporates Boards Auditors Cred
itors All market participants

• Range of laws pertaining to various stakeholder
  rights obligations, consumer rights, labour
  rights and environmental issues

• Regulatory and other efforts
• Civil action - Market manipulation
  Insider trading
• - Enhanced prospectus disclosure
• obligations on directors, officers
  and advisers
• - Right to compensation
• Enhancement of audit quality and independence
• Facilitation of efforts of MSWG

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Disclosure And Transparency
Are essential pre-requisites to effective CG..
Quarterly reporting - 1999
Directors certification of accounts - 1965
Transparency in share ownership 1998
MASB established Mandatory compliance to
accounting standards- 1997
Directors statement on internal controls - 2001
Directors and CEOs to disclose interests in PLCs
- 1998
Annual Report financial statements

• Continuous disclosure framework listing
  requirements

Revamped Takeovers Mergers Code 1999
Mandatory disclosure on extent of CG Code
Compliance - 2001
Substantial shareholding disclosure
Move towards DBR
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Responsibilities Of The Board
Are also continuously enhanced..
Best Practices Code on Corporate Governance 2000
Directors Fiduciary duties common law and
statutory obligations
Enforcement Accountability of principal
officers / controlling stakeholders
Directors eligibility
Power to Bar/suspend directors
Power to Bar/suspend directors - enhanced
Mandatory Independent directors 1987
Independent directors 1/3rd requirement
2001
Directors certification of accounts - 1965
Audit Committee composition function 2001
Directors statement on internal controls 2001
Audit committees mandatory 1994
Best Practices Guidelines on Internal Audit
Function 2002
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Responsibilities Of The Board
Training and awareness programmes are vigorously
pursued.

• Training and Awareness Component
• Mandatory Accreditation Programme (MAP) for
  directors of PLCs
• Continuing Accreditation Programme (CEP) for
  directors of PLCs
• Securities Industry Development Centre
• Malaysian Institute of Corporate Governance
• Industry Corporate Awards

• Ongoing changes to the law
• Codification of directors duties
• Business judgment defence
• Enhancement and rationalisation of related part
  and substantial property transaction provisions
  in Companies Act 1965

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Regulatory Reform Efforts Are Supported By Other
Initiatives
Appointment of professional managers
Acceleration of corporate restructuring
Stepping Up on Enforcement
SCs supervisory and enforcement capabilities
civil enforcement powers in relation to insider
trading provisions
Engagement with constituents
Ongoing education and awareness programmes
Powers to impose civil penalties
Compounding powers enhanced
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Corporate Governance Initiatives in Malaysia a
snapshot
True and fair certification by Directors on
financial statements Audit Committee
Requirement Independent Accounting Standard
Setting Board Directors and CEOs to disclose
interests in PLC Quarterly Reporting Revamped
Takeovers Mergers Code
Code on
Corporate Governance Mandatory disclosure on CG
Code compliance Establishment of MSWG Mandatory
Accreditation Programme for Directors Internal
Audit guidelines for PLCs
1965 1994 1997 1998 1999 1999 2000 2001 2001 2001
2002
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Way Forward - Ongoing commitment

• To continue to facilitate the hybrid vigour of
  a multi pronged approach in efforts to enhance
  CG
• To further build on the recommendations of
  Report on Corporate Governance (1999) and the
  Capital Market Masterplan(2001) within a
  holistic framework for longer-term market
  development

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