KUALA LUMPUR, Nov 24 — Improvements were recorded in the overall adoption of the Malaysian Code on Corporate Governance (MCCG) by listed companies in 2020, according to the Securities Commission (SC).
In its Corporate Governance Monitor 2021 report released today, the SC said out of the 36 best practices, 24 had adoption levels of at least 90 per cent — that is, at least 90 per cent of listed companies had adopted the practice — against 23 best practices in 2019.
However, the Step Up practices, introduced to encourage all companies to go a step further in strengthening the corporate governance practices, saw among the lowest adoption levels — as low as only five per cent by listed companies — compared to other MCCG best practices.
Best practices with the lowest adoption levels include Step Up practice 7.3 (disclosure of detailed senior management remuneration on a named basis) at five per cent, Step Up practice 4.3 (setting a nine-year tenure limit for independent directors) at 11 per cent, and Step Up practice 9.3 (the board establishes a risk management committee) at 29 per cent.
Besides the Step Up practises, two other practices in the MCCG recorded adoption levels of less than 50 per cent of listed companies, namely Practice 4.51 (gender diversity on boards) and Practice 7.22 (disclosure of top five senior management remuneration on a named basis and in bands of RM50,000).
The SC expressed disappointment that a large number of listed companies still depart from Practice 4.5, which recommends that the board disclose in its annual report the company’s policies on gender diversity, its targets and measures to meet those targets.
It noted that several of the companies that reported departure from Practice 4.5 explained that they appoint directors based on merit and do not discriminate based on gender.
“The SC would like to emphasise that boards are expected to ensure that any individual appointed to the board, regardless of gender, is appointed based on merit and possesses the skills and experience required for the position. Setting a gender diversity policy and target does not dilute this expectation.
“Moreover, boards should recognise that gender is a critical aspect of board diversity, alongside other factors such as skills, experience, age, and nationality,” it said.
The capital markets regulator noted a marginal improvement in relation to gender diversity on boards. As of Oct 1, 2021, women held 17.7 per cent of board positions across all listed companies (2020: 17.5 per cent) and in the top 100 listed companies, 25.5 per cent (2020: 25.1 per cent).
The SC also reminded listed companies that it is mandatory to disclose their policy on board composition with regard to the mix of skills, independence and diversity, including gender diversity required to meet the needs of listed companies.
“Failure to consider gender diversity and disclose company policy in relation to it may constitute a breach of the Listing Requirements,” it added.
Meanwhile, the SC said it is encouraging that in 2020, an additional 44 listed companies disclosed the top five senior management remuneration in bands of RM50,000 (Step Up practice 7.2), of which 34 were small-cap companies (those with market capitalisation of below RM1 billion).
“This is an improvement as there were only 10 new adopters recorded in 2019,” it said.
The total number of listed companies that adopted Step Up practice 7.2 rose to 146 from 122 listed companies in 2019.
From the 122 listed companies that reported adoption in 2019, three have been delisted, four changed the company’s financial year-end and did not issue a corporate governance report in 2020 and six companies that adopted the practice in previous years, decided not to continue doing so.
The SC said the common justification given for the departure is to maintain the privacy of senior management personnel, concerns on talent retention and poaching in a competitive market for talent as well as personnel safety and security.
“While we acknowledge the concerns highlighted by these companies, boards should strive to enhance transparency on the remuneration of senior management to facilitate among others, stakeholders’ assessment of whether pay received by these individuals is fair, taking into consideration the individual’s responsibilities, performance against set targets, the company’s financial and non-financial performance,” it said.
The Corporate Governance Monitor 2021 report presents an update on the adoption of the 2017 edition of the MCCG and the quality of corporate governance disclosures.
— Bernama
