Corporate Governance in Malaysia

Sources of corporate governance rules and practices

What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?

Malaysia’s corporate governance framework is contained in several pieces of legislation and guidelines. Applicable laws and guidelines include:

• the Companies Act 2016 (CA 2016);
• the Financial Services Act 2013 (FSA 2013);
• the Capital Markets and Services Act 2007 (CMSA);
• the Malaysian Code on Corporate Governance 2017 (MCCG);
• Bank Negara Malaysia’s (The Central Bank of Malaysia) (BNM) Guidelines on Corporate Governance;
• Bursa Malaysia’s Main Market, Ace Market and Leap Market Listing Requirements; and
• the Code of Ethics for Company Directors issued by the Companies Commission of Malaysia (CCM).

CA 2016

The CA 2016, which came into force on 31 January 2017 (repealing the Companies Act 1965) applies to all companies and corporations in Malaysia, and can be said to be the primary statute on corporate governance in Malaysia.

The CA 2016 governs, among others, directors’ duties and liabilities, conflicts of interest involving directors and indemnification of directors. It further codifies the common law rules requiring directors to exercise their powers for a proper purpose, in good faith and in the best interest of the company.

The CA 2016 requires directors to disclose by notice in writing to the company:

• particulars of his or her shareholding in the company, and changes to such shareholding;
• interest in transactions involving the company; and
• conflicts or potential conflicts of interest.

Financial Services Act 2013

Financial institutions in Malaysia are required to comply with the corporate governance framework and internal controls pursuant to the Financial Services Act 2013 (FSA 2013).

Under the FSA 2013, the prior written approval of BNM is required before a person may be appointed as a chair, director or chief executive officer (CEO) of a financial institution. Additionally, BNM is empowered under the FSA to stipulate fit and proper criteria applicable to financial institutions.

BNM has also issued Guidelines on Corporate Governance that apply to financial institutions (see below).

Malaysian Code on Corporate Governance 2017

There have been significant corporate governance developments in Malaysia, with the release of the Malaysian Code on Corporate Governance 2017 (MCCG). The MCCG, which was issued in April 2017, is a set of practices and guidelines issued by the Securities Commission of Malaysia (SC) for companies to strengthen corporate culture anchored on accountability and transparency. The MCCG adopts the ‘comprehend, apply and report’ approach, which is aimed at reinforcing mutual trust between companies and their stakeholders by promoting meaningful disclosures by companies to their stakeholders.

The MCCG applies to listed companies, but non-listed entities, including state-owned enterprises, small and medium-sized enterprises and licensed intermediaries are encouraged to adopt the practices in the MCCG to enhance their accountability, transparency and sustainability.

The MCCG is based on three key principles of good governance, which are:

• board leadership and effectiveness;
• effective audit and risk management; and
• integrity in corporate reporting and meaningful relationships with stakeholders.

The MCCG advocates the adoption of standards and practices that go beyond the minimum prescribed by statute. While it is not mandatory for companies to observe the MCCG 2017 practices, listed companies are required to disclose in their annual report how they have complied with the recommendations. Public companies are to provide meaningful explanations in their annual report as to how they have applied each practice in the MCCG, or in the event of a departure from a practice, the company must provide an explanation for the departure and disclose the alternative practice and how the application of the practice achieves the intended outcome.

BNM’s Guidelines on Corporate Governance

BNM’s Guidelines on Corporate Governance apply to financial institutions and prescribe, among others, key responsibilities of the board and senior management, requirements on minimum quorum and attendance at board meetings, and matters relating to composition of the board. Significantly, the guidelines provide that:

• the board must have a majority of independent directors at all times;
• the board must establish a written policy to address directors’ actual and potential conflicts of interest; and
• written approval of BNM must be obtained before a financial institution removes an independent director (save where such removal is as a result of a disqualification under the FSA) or before an independent director resigns.

Capital markets

Corporations listed on Bursa Malaysia are required to comply with listing requirements and rules prescribed by Bursa Malaysia (Listing Requirements), in addition to the CA 2016.

The Listing Requirements provide that boards of listed companies must establish both a nominating committee and an audit committee. Additionally, at least one-third of boards of listed companies must comprise independent directors.

Listed companies must also ensure that their board of directors provide a narrative statement of their corporate governance practices with reference to the MCCG in their annual report.

Code of Ethics for Company Directors

The Code of Ethics for Company Directors (Code of Ethics) was issued by the CCM to establish a standard of competence for corporate accountability in respect of directors of companies in Malaysia, which includes standards of professionalism and trustworthiness with a view of upholding good corporate integrity.

Among others, the Code of Ethics recommends that:

• directors should disclose immediately all contractual interests, direct or indirect, with the company;
• directors should not divert any business ventures being pursued by the company, or make use of confidential information obtained by reason of their office for their own advantage; and
• directors should at all times act with utmost good faith in any transaction involving the company and discharge their duties in a responsible manner.

What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder groups or proxy advisory firms whose views are often considered?

The CCM is responsible for administration and enforcement of the CA 2016. Financial institutions are further regulated by BNM, while listed companies are regulated by the SC and Bursa Malaysia.

Rights and equitable treatment of shareholders

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

Under the CA 2016, directors of a company may be appointed by way of an ordinary resolution. In the case of a public company (which includes companies listed on Bursa Malaysia), a motion for the appointment of two or more persons as directors in a single resolution shall not be made unless a resolution that the motion shall be so made has first been agreed to unanimously by the meeting.

A director of a private company may, subject to its constitution, be removed by ordinary resolution. In the case of a public company, a director may be removed by ordinary resolution, subject to the following:

• special notice (of at least 28 days) shall be required for the resolution;
• where such director was appointed to represent the interest of a particular class of shareholders or debenture holders, the resolution to remove him or her shall not be effective until a successor has been appointed; and
• the director shall be given the right to make oral or written representation not exceeding a reasonable length on the resolution to remove him or her. The director may request for the written representation to be notified to shareholders.

Management supervision of a company vests with the board of directors, subject to controls contained in the CA 2016 and constitution (see below).

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The CA 2016 provides that shareholders’ approval must be obtained for the following matters:

• issuance of additional shares of the company;
• appointment or removal of company directors;
• approval of directors’ remuneration in the case of a public company;
• appointment or removal of auditor in the case of a public company;
• amending and changing the company constitution (in which case a majority of three-quarters of shareholder votes would need to be obtained);
• any arrangement or transaction exceeding 250,000 ringgit or 10 per cent of the net asset value of the company between the company and:
• a director of the company;
• a substantial shareholder of the company, its holding company, or its subsidiary; or
• a person connected to such director or substantial shareholder, involving the acquisition or disposal of shares or non-cash assets from or to the company. The director or substantial shareholder in question must abstain from voting in the meeting in such a case;
• any arrangement or transaction involving the acquisition or disposal of substantial property or undertaking of the company; and
• alteration or reduction of share capital of a public company.

The CA 2016 does not stipulate that any matter be subject to a non-binding shareholder vote.

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

Unless otherwise provided by the constitution of a company, in the case of companies having a share capital:

• on a vote taken in a written resolution or on a poll taken at a general meeting, every shareholder has one vote in respect of each share held; or
• on a vote taken by show of hands, every shareholder has one vote.

Companies listed on Bursa Malaysia must ensure that resolutions intended to be moved at any general meeting are voted on by poll.

In respect of companies without share capital, every member shall have one vote.

Notwithstanding the above, companies are allowed to provide for different voting rights for different classes of shares in their constitution. The CA 2016 provides that if a company has different classes of shares, its constitution shall state prominently that its share capital is divided into different classes of shares and the voting rights attaching to shares in each class must be stipulated. If a company provides for non-voting shares, it must also ensure that the words ‘non-voting’ are displayed clearly in the descriptive title of the shares and on any share certificate, directors’ report or prospectus issued by the company.

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

Under the CA 2016, a share in a company, other than preference shares, confers on its holder the right to (among others):

• attend, participate and speak at a meeting;
• vote on a show of hands on any resolution of the company;
• one vote for each share on a poll on any resolution of the company;
• an equal share in the distribution of the surplus assets of the company; or
• an equal share in dividends authorised by the board.

The rights of preference shareholders are set out in the constitution of the company. Preference shareholders are not typically given the right to vote on resolutions unless the resolution relates to the rights of that particular class of preference shares held by the shareholder.

A shareholder is entitled to appoint a proxy to attend, speak and vote at a general meeting.

A resolution of a private company may be passed by written resolution.

The CA 2016 further provides that a company may hold a meeting of its members within Malaysia at more than one venue using any technology that allows all members a reasonable opportunity to participate.

For private companies, a member of the company holding more than 5 per cent of total voting shares may require the company to circulate a resolution that may then be properly moved as a written resolution. Resolutions to remove a director or auditor before the expiry of their appointment shall not however be made via written resolution.

The MCCG further recommends that listed companies with large numbers of shareholders use technology to facilitate greater shareholder participation at general meetings.

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

Under the CA 2016, meetings of shareholders may be convened by any member holding at least 10 per cent of the issued share capital of a company, or a lower percentage as specified in the constitution. If the case of a company without a share capital, any member holding at least 5 per cent in the number of shareholders may convene a shareholders’ meeting.

A meeting of a company or of a class of shareholders, other than a meeting for the passing of a special resolution, shall be called by notice in writing of not less than 14 days or such longer period as is provided in the constitution of the company.

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Controlling shareholders do not owe a statutory duty to non-controlling shareholders.

Non-controlling shareholders may however apply to court for an order under applicable provisions of the CA 2016, on grounds that:

• the company’s affairs are being conducted or the directors’ powers exercised in an oppressive manner or in disregard of the interests of shareholders; or
• some act or the company has been done or is threatened or that some resolution of the shareholders, debenture holders or any class thereof has been passed or is proposed, which unfairly discriminates or is prejudicial to one or more shareholders (including the shareholder seeking the order).

Additionally, a shareholder may, with leave of the High Court, initiate or defend a proceeding (commonly referred to as the statutory derivative action) on behalf of the company.

Can shareholders ever be held responsible for the acts or omissions of the company?

Shareholders of a company limited by shares are generally not liable for actions of the company, except as contributories on the winding-up of the company, to the extent of any unpaid amount on shares held.

Corporate control

Are anti-takeover devices permitted?

The Rules on Takeovers, Mergers and Compulsory Acquisitions 2016, issued by the SC (Takeover Rules) stipulate that during the offer period, or where the board of the offeree has any reason to believe that a bona fide takeover offer might be imminent, the board shall not take any action or make any decision (other than in the ordinary course of business) without obtaining the approval of shareholders at a general meeting on the affairs of the offeree that could effectively result in such takeover offer being frustrated or the shareholders being denied an opportunity to decide on the merits of a takeover offer.

May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?

The CA 2016 imposes an obligation on directors to obtain the approval of the company’s shareholders in a general meeting prior to the issuance of new shares. Members of the company are required to pass a resolution in a general meeting to authorise the directors to issue new shares.

However, directors are not required to obtain approval from shareholders in the event the issuance of new shares is made in furtherance of any of the following:

• the new shares are to be allotted to shareholders under an offer made to the shareholders in proportion to their shareholdings;
• the new shares are a bonus issue of shares to shareholders of the company in proportion to their shareholdings;
• the new shares are to be allotted to a promoter of a company that the promoter has agreed to take; or
• shares that are to be issued as consideration or part consideration for the acquisition of shares or assets by the company and shareholders of the company have been notified of the intention to issue the shares at least 14 days before the date of issue of the shares.

Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?

The CA 2016 provides that a private company shall restrict the transfer of its shares. Such restrictions typically relate to a director’s right to refuse registration of the transfer. A director may refuse transfer of shares exercised in good faith in the interest of the company. The constitution of the company may provide for pre-emptive rights.

Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?

Under the CMSA and Takeover Rules, an offeror has a right to compulsorily acquire the shares of minority shareholders where it has received 90 per cent acceptances in respect of the takeover offer (excluding shares already held at the date of the takeover offer by the offeror or persons acting in concert).

Do shareholders have appraisal rights?

There are no appraisal rights afforded to shareholders under law. Such rights may be provided for under the constitution of private companies.

Responsibilities of the board (supervisory)

Is the predominant board structure for listed companies best categorised as one-tier or two-tier?

Malaysian listed companies adopt a single-tier board system. The board is permitted to delegate certain functions to committees established by the board.

What are the board’s primary legal responsibilities?

The primary responsibility of the board is to manage and supervise the management of the business and affairs of the company.

The board is also responsible for the following:

• preparing the financial statements of the company;
• causing accounts to be kept to sufficiently explain the transactions and financial position of the company, disclosing in a manner to enable the accounting records to be properly audited;
• in the case of public companies, holding the annual general meeting of the company for public companies; and
• making disclosure in the manner prescribed by the CA 2016, including disclosure in respect of shares held in the company and particulars of changes of such shareholding.

Whom does the board represent and to whom does it owe legal duties?

Directors are obligated to act in the best interests of the company, notwithstanding that the director has been appointed as a representative of a shareholder.

Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?

Yes, the company may initiate action against a director for breaches of duty. A shareholder may also commence statutory derivative action on behalf of the company against directors.

It should also be noted that the CCM has the power to take enforcement action for breaches of the CA 2016 (including contravention of provisions relating to directors).

Do the board’s duties include a care or prudence element?

The board is required to exercise reasonable care, skill and diligence when performing its duties.

To what extent do the duties of individual members of the board differ?

The CA 2016 does not distinguish between executive and non-executive directors (all board members therefore owe the same duties to the company).

The CA 2016 requires that directors perform their duties with the standard of knowledge, skill and experience that may reasonably be expected of a director having the same responsibilities, along with any additional knowledge, skill and experience that the director has.

To what extent can the board delegate responsibilities to management, a board committee or board members, or other persons?

The board may delegate its powers to a committee or the board, an officer, employee or expert. The board is, however, responsible for the exercise of the power by the delegatee as if the power had been exercised by the directors themselves, save where:

• the directors believed on reasonable grounds at all times that the delegate would exercise the power in conformity with the duties imposed on the directors under this Act and the constitution of the company, if any; and
• the directors believed on reasonable grounds, in good faith and after making a proper enquiry, if needed, that the delegatee was reliable and competent in relation to the power delegated

Is there a minimum number of ‘non-executive’ or ‘independent’ directors required by law, regulation or listing requirement? If so, what is the definition of ‘non-executive’ and ‘independent’ directors and how do their responsibilities differ from executive directors?

The Listing Requirements provide that public listed companies must ensure that their board comprises at least two independent directors or one-third of its board, whichever is higher. Financial institutions are required to have a board consisting of a majority of independent directors at all times. ‘Independent director’ is defined in the Listing Requirements as a director who is independent of management and free from any business or other relationship that could interfere with the exercise of independent judgement or the ability to act in the best interests of the listed company.

The MCCG further recommends that at least half of a board of directors should consist of independent directors. For large companies, the majority of the board should consist of independent directors.

How is the size of the board determined? Are there minimum and maximum numbers of seats on the board? Who is authorised to make appointments to fill vacancies on the board or newly created directorships? Are there criteria that individual directors or the board as a whole must fulfil? Are there any disclosure requirements relating to board composition?

The CA 2016 requires that private companies have a minimum of one director and that public companies a minimum of two directors. The minimum number of directors in a company must have their principal place of residence in Malaysia. A director of a company may not resign or vacate his or her position if, by virtue of this vacancy, the number of directors in the company falls below the minimum number.

The constitution of a company may however provide for a higher minimum number of directors on the board.

Any vacancy in the board may be filled by board themselves, and such person shall hold office:

• in the case of a public company, until the next annual general meeting; and
• in the case of a private company, in accordance with the terms of appointment.

Under the CA 2016, a person who satisfies the following may be appointed as a director:

• a natural person;
• at least 18 years old;
• not an undischarged bankrupt;
• not convicted of any offence relating to fraud or dishonesty punishable on conviction by imprisonment with three months or more;
• not convicted of any offence in relation to the promotion, formation or management of a corporation; and
• not convicted of any offence in relation to improper use of company assets, position and corporate opportunity or competing with the company.

Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chair and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?

The CA 2016 does not contain an express provision requiring the roles of board chair and CEO to be separate. For financial institutions however, BNM’s Corporate Governance Guidelines require that the board chair must not be an executive, and must not have served as a CEO of the financial institution in the past five years.

The MCCG recommends the separation of the roles of chair and CEO.

What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?

The Listing Requirements require public listed companies to form an audit committee from among their directors. The fundamental duty of the audit committee is ensuring the integrity of financial reporting and that the financial statements give a true and fair view of the financial position and results of the company. The audit committee must also ensure compliance with all applicable legal and regulatory financial reporting requirements and accounting standards.

The nominating committees and auditing committees should comprise non-executive directors, of which a majority of those directors shall be independent.

Although the Listing Requirements do not mandate the establishment of a remuneration committee, the MCCG recommends that the board of directors should establish a remuneration committee to implement policies and procedures on remuneration including reviewing and recommending matters relating to the remuneration of board and senior management. Additionally, a remuneration committee should assist the board in developing and administrating a fair and transparent procedure for setting policy on remuneration of directors and senior management to ensure that remuneration packages are determined on the basis of the directors’ and senior management’s merit, qualification and competence, having regard to the company’s operating results, individual performance and comparable market statistics. The SC has recommended that such remuneration committee should consist of non-executive directors and a majority of them must be independent directors, drawing advice from experts, where necessary. Directors who are shareholders should abstain from voting at general meetings to approve their fees. Similarly, executive directors should not be involved in deciding their own remuneration.

A financial institution must establish the following board committees:

• board nominations committee;
• board remuneration committee;
• board risk management committee; and
• board audit committee

Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?

There is no requirement for a minimum number of board meetings to be held each year.

Is disclosure of board practices required by law, regulation or listing requirement?

Bursa Malaysia’s Main Market Listing Requirements

The Listing Requirements imposes on public listed companies a requirement to disclose, in their annual report:

• the total number of board meetings held during the preceding financial year;
• the number of board meetings attended by a director during the preceding financial year, and
• the audit committee report in respect of the financial year.

How is remuneration of directors determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of directors, the length of directors’ service contracts, loans to directors or other transactions or compensatory arrangements between the company and any director?

There is no requirement for private or public companies to have service contracts for directors. That said, for public companies, where such a contract exists, the public company is required to keep a copy of the service contract at its registered office for inspection.

Remuneration of directors

The Listing Requirements provide, in relation to public companies, that fees payable to non-executive directors shall be by a fixed sum, and not by a commission on or percentage of profits or turnover. Salaries payable to executive directors may not include a commission on or percentage of turnover.

The MCCG recommends that the board has in place policies and procedures to determine the remuneration of directors and senior management that take into account the demands, complexities and performance of the company as well as skills and experience required, and that the board establishes a remuneration committee to implement its policies and procedures on remuneration.

Tenure of independent director

The MCCG further recommends that independent directors of a company are not allowed to hold office for more than nine years. Upon completion of the ninth year in office, the director may continue to serve on the board as a non-independent director.

However, if the board intends to retain an independent director beyond nine years, it should provide justification and seek shareholders’ approval annually.

If the board continues to retain the independent director after 12 years, the board should provide justification and seek annual shareholders’ approval through a two-tier voting process, as prescribed by the MCCG.

Loans to directors

As a general rule, a company is not allowed to give a loan to a director or enter into any guarantee (or provide security) in connection with a loan made to the director.

How is the remuneration of the most senior management determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of senior managers, loans to senior managers or other transactions or compensatory arrangements between the company and senior managers?

There are no requirements or policies in respect to remuneration of senior management.

Is directors’ and officers’ liability insurance permitted or common practice? Can the company pay the premiums?

Yes, directors’ and officers’ liability insurance is permitted, although within a relatively limited scope.

Additionally, companies may, with prior approval of the board, effect (and pay premiums for) D&O insurance in relation to:

• civil liability for any act or omission of a director;
• costs incurred by that director in defending or settling any claim; or
• costs incurred by that director in defending any proceedings that have been brought in which:
• he or she is acquitted;
• he or she is granted relief under the CA 2016; or
• where proceedings are discontinued or not pursued.

The above shall not, however, apply to any civil or criminal liability in the case where the director breaches his or her duty under the CA 2016.

Are there any constraints on the company indemnifying directors and officers in respect of liabilities incurred in their professional capacity? If not, are such indemnities common?

Such indemnification is allowed, within the limits prescribed by the CA 2016.

Companies are permitted to indemnify an officer or director of the company for costs incurred in respect of proceedings (relating to liability in the capacity of officer or auditor) where judgment was given in favour of that officer or auditor, or in which the officer or auditor is acquitted.

Wider indemnities are more commonly provided by shareholders.

To what extent may companies or shareholders preclude or limit the liability of directors and officers?

Any provision that seeks to exempt a director or officer of a company for liability in respect of negligence, breach of duty or breach of trust, is void. Save as prohibited by the CA 2016 or constitution of a company, breaches of duties of directors may be ratified by a resolution of shareholders. There can, however, be no ratification in respect of unlawful acts.

What role do employees have in corporate governance?

Employees are not required by law to play an active role in corporate governance. The MCCG, however, recommends that the board establishes a Code of Conduct and Ethics for the company (and, together with management, implements its policies and procedures), including implementing policies and procedures on whistle-blowing.

Is there any law, regulation, listing requirement or practice that requires evaluation of the board, its committees or individual directors? How regularly are such evaluations conducted and by whom? What do companies disclose in relation to such evaluations?

The Listing Requirements requires public listed companies to state in the annual report a summary of their corporate governance practices during the preceding financial year, including:

• board leadership and effectiveness;
• effective audit and risk management; and
• integrity in corporate reporting and meaningful relationship with stakeholders.

The MCCG recommends that boards should undertake a formal and objective annual evaluation to determine the effectiveness of the board, its committees and each individual director. The board should disclose how the assessment was carried out and its outcome. For large companies, it is recommended that the board engages independent experts periodically to facilitate objective and candid board evaluations.

Disclosure and transparency

Are the corporate charter and by-laws of companies publicly available? If so, where?

The constitution of a company is publicly available at the CCM.

What information must companies publicly disclose? How often must disclosure be made?

Under the Listing Requirements, public listed companies are required to make immediate disclosure of material information regarding the company. ‘Material information’ means information that will be reasonably expected to have a material effect on the price or value of the listed securities, or the decision of an investor whether to trade in such securities. Examples of events that will need to be immediately disclosed by public listed companies include the entry into a joint venture agreement or merger, acquisition or loss of a contract, introduction of a new product and discovery, change in management, and borrowing of funds.

Additionally, public listed companies are required to issue quarterly reports setting out the interim financial results of the company and annual reports disclosing their audited financial statements together with the auditor and director’s reports of the public listed company.

Hot topics

Do shareholders have an advisory or other vote regarding remuneration of directors and senior management? How frequently may they vote?

The CA 2016 imposes requirement for approval by shareholders in respect of payment of fees or provisions of benefits to directors in public companies. All fees and benefits payable to directors of public companies and public listed companies and their subsidiaries are subject to the approval of shareholders in a general meeting (see question 4). CCM has further clarified that approval is only required for fees, bene­fits and entitlements that arise from the appointment to the office of a director, and not from his or her employment in an executive or management position. It is also highly encouraged under the MCCG for the remuneration of executive directors in listed companies to be subject to the review and evaluation of a remuneration committee. The SC has recommended that such remuneration committee should consist of non-executive directors and a majority of them must be independent directors, drawing advice from experts, where necessary.

In respect of directors in a private company, executives and senior management, its board of directors is empowered (subject to its constitution) to approve the fees of directors and benefits payable to them including arising from any loss of employment. It is a requirement under CA 2016 that such approval be recorded in the minutes of the directors and shareholders must be notified of the approval within 14 days. Directors who are also shareholders of a company should abstain from voting at general meetings to approve their fees. Similarly, executive directors should not be involved in deciding their own remuneration (see question 25). There is also a requirement in the Listing Requirements for the remuneration of directors of a listed company to be disclosed in its annual report.

Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?

Yes, directors may be nominated by the shareholders of the company (see question 3).

Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?

Public companies in Malaysia are statutorily required to conduct annual general meetings where shareholders will have the opportunity to speak on issues before voting on matters requiring their approval.

There is, however, no requirement for private companies to have an annual general meeting under the CA 2016.

Are companies required to provide disclosure with respect to corporate social responsibility matters?

Listed companies are required to include in their annual report, a statement in relation to the management of material economic, environmental and social risks and opportunities, including the governance structure in place to manage the economic, environmental and social risks and opportunities.

Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?

There is no such requirement.

Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?

There is no such requirement.

Update and trends

Please identify any new developments in corporate governance over the past year (including any significant proposals for new legislation or regulation, even if not yet adopted). Please identify any significant trends in the issues that have been the focus of shareholder interest or activism over the past year (without reference to specific initiatives aimed at specific companies).

Corporate Governance Strategic Priorities Plan

The SC launched the three-year Corporate Governance Strategic Priorities 2017-2020 Plan in September 2018, which provides an extensive review of the state of corporate governance in Malaysian public listed companies, and sets out strategic priorities in addressing corporate governance concerns in Malaysia, including:

• enhancing the corporate governance regulatory framework;
• strengthening the corporate governance ecosystem;
• promoting greater diversity on boards;
• embedding the corporate governance culture early in the life cycle of companies and among youth; and
• leveraging technology to enhance monitoring of corporate governance practices.

Institute of Corporate Directors

Additionally, the Institute of Corporate Directors Malaysia (ICDM) was launched by SC in Malaysia on 1 October 2018 to serve as a one-stop professional institution for directors by directors to enhance board effectiveness. The ICDM is recognised and supported by SC, BNM, Bursa Malaysia and the Capital Market Development Fund and seeks to:

• promote for public benefit, excellence, integrity and the highest levels of skills and professional competence among corporate directors in Malaysia, and support board effectiveness through:
• the formulation of a director competency framework;
• a structured professional development pathway for directors; and
• the provision of a board and director effectiveness evaluation service by a panel of experts to organisations for objective and candid assessment;
• advocate the adoption and application of corporate governance practices in substance through, among other things, publication of materials, engagements, forums and workshops; and
• represent the interests of its members in relation to policy that affects members’ interests, and rights and obligations of directors.

Corporate liability

The Malaysian Anti- Corruption Commission (Amendment) Act 2018, which came into force on 1 October 2018, introduces, among other things, corporate liability provisions (which will only take effect from June 2020) that will render commercial organisations, including foreign companies and partnerships conducting their business in Malaysia, liable for failure to prevent corruption. The law also extends to acts of corruption committed beyond the shores of Malaysia. This new law imposes criminal liability on a commercial organisation if a person associated with that organisation corruptly gives, offers or promises any gratification to any person with an intent to obtain or retain business or a business advantage for the commercial organisation.

Additionally, the Prime Minister of Malaysia has recently announced that the law in Malaysia would be amended to empower the Malaysian Anti-Corruption Commission to identify and reveal proxies, nominees and beneficial owners behind commercial organisations being investigated for corruption.

30% Club

It was reported in late 2018 that Malaysia is on top of the leaderboard among ASEAN countries for having the highest number of women in the boardroom, and well on the way to achieve at least 30 per cent female representation in the top 100 public-listed companies by 2020. The 30% Club, set up in Malaysia in 2017, is a business group seeking to break the glass ceiling for women in top management and at board level. Additionally, the 30% Club seeks to uphold the MCCG, which provides, among other things, that the board of directors of large companies must have at least 30 per cent female directors.

The club also inspires debate and discussions at corporate leadership and board level on gender diversity and its benefits to business. The 30% Club assists corporate boards in their engagement of qualified, board-ready women as well as to support initiatives to build a pipeline of women in executive and non-executive roles.