17. crf 2012 azryain borhan

Companies Commission of Malaysia @ CRF 2012 1

CORPORATE GOVERNANCE & CORPORATE SOCIAL RESPONSIBILITY

AZRYAIN BIN BORHANDirector,

Companies Commission of Malaysia Training Academy

Repositioning Corporate Governance and Corporate Social Responsibility in the 21st Century Corporate

Environment: The SSM Approach

Companies Commission of Malaysia @ CRF 2012

PERSPECTIVE: THE GLOBAL DIMENSION OF CG AND CR

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PERSPECTIVE: MALAYSIA - A NATION UNDERGOING TRANSFORMATION

• 5 key global trends which Malaysia must address

“…….99.2% of enterprises in Malaysia are SMEs”Tenth Malaysia Plan


VISION 2020 - INNOVATION DRIVEN ECONOMY

Developed country, High income economy[USD17,000 Per Capita Income]

EFFICIENCY DRIVEN ECONOMY

[USD7,000 Per Capita Income]

WITHIN 8YEARS

PRIVATE SECTOR-LED ECONOMY

THE NATIONAL CHALLENGE: ATTAINING HIGH-INCOME DEVELOPED NATION

NEM - CHARACTERISTICS OF MALAYSIA’S ECONOMY IN 2020

• Market-Led

• Well-Governed

• Regionally integrated

• Entrepreneurial• Innovative


CHARACTERISTICS OF MALAYSIA’S

ECONOMY IN 2020

• Market-Led• Well-Governed• Regionally

integrated• Entrepreneurial• Innovative

PRIVATE SECTOR-LED ECONOMY

COMPETE GLOBALLY

SUSTAINABLE DOMESTIC BUSINESS

FRAMEWORK

• Subscribes to corporate governance

• Carries out business operations consistent with the Triple Bottom Line considerations

• Innovative

ORI

ENTA

TIO

N &

RE-

ORI

ENTA

TIO

N O

F TH

E PR

IVAT

E SE

CTO

R HU

MAN

CA

PITA

L

STRONG FOUNDATION ON

BUSINESS SUSTAINABILITY

ENHANCED PRIVATE SECTOR PARTICIPATION

INFORMED FOREIGN

INVESTORS

EDUCATION & AWARENESS

ECONOMIC PARTICIPANTS

EXISTING FUTUREENHANCED FOREIGN

INVESTMENT

OUTCOMECAUSATION

1. POSITIONING CG AND CR INTO THE NATIONALECONOMIC VALUE CHAIN

IndividualKnowledge Companies National economy


2. INTRODUCING A PARADIGM SHIFT INTOCORPORATE GOVERNANCE

1997 ASIAN FINANCIAL

CRISIS

• Cadbury Report (1992)

• GreenburyReport (1995)

• TurnBullReport (1999)

• Higgs Report (2003)

• Smith Report (2003)

CG 2.0• Shareholders primacy• Profit-centric• Responsive to crisis• ‘Safety net’ -

prevents/minimizes economic/corporate downfall

Conventional Corporate Governance

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CG 2.0• Stakeholders primacy• Sustainability-centric• Tool for economic

advancement -economic catalyst

• Holistic• Dynamic

considerations/subject matter

21st Century Corporate Governance

2. INTRODUCING A PARADIGM SHIFT INTO CG -INTEGRATING CR WITH CG

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Revenue and profit

Shareholdersdividend

Duties andresponsibilities

of directorsAuditors

CONVENTIONAL CORPORATE GOVERNANCE CONSIDERATION

LEVE

L O

F EM

PHAS

IS

CG 1.0

CG 2.0

CG 3.0

Society Environment

Workers National Economy

CORPORATE RESPONSIBILITY

Towards Corporate Sustainability

HIGH

LOW

MED



“The process and structure usedto direct and manage thebusiness and affairs of thecompany towards enhancingbusiness prosperity andcorporate accountability withthe ultimate objective ofrealising long term shareholdervalue, whilst taking intoaccount the interests of otherstakeholders.”

High Level Finance Committee Report on Corporate Governance,

February 1999

PROCESS &

STRUCTURE

• Enhanced business prosperity

• Enhanced corporate accountability

• Long term shareholder value

• Other stakeholders’ interests

Direct & manage the business &

affairs of a company



Corporate responsibility means “commitment by corporations andbusinesses towards achieving sustainability in the social, economic andenvironmental conditions in furtherance to the pursuit of profitability“

SSM Corporate Responsibility Agenda, 2009

“The process and structure used to direct and manage the business andaffairs of the company towards enhancing business prosperity andcorporate accountability with the ultimate objective of realising long termshareholder value, whilst taking into account the interests of otherstakeholders.”

High Level Finance Committee Report on Corporate Governance, February 1999

SSM functions = “….. To instill good corporate governance and promoteproper conduct amongst officers of corporations, business owners,industry groups and professional bodies through continuous education”.

Subsection 17(c) Companies Commission of Malaysia Act 2001



High Level Finance Committee Report

on Corporate Governance - 5 February 1999

The Deduction

•Under difficult economiccircumstances, corners were ‘cut’ andrules were ‘bent’

•Key issues: related party transactions,decisions making by corporateleaders, asset shifting, conflict ofinterest and lack of disclosure intransactions, by directors poorfinancial management by directors

• Ineffective enforcement and influenceof substantial shareholders.

• ‘Where were the directors’ and ‘wherewere the regulators?’

•Weakness in the relationship betweenthe company and members,shareholders rights, controllingshareholders, duties andresponsibilities of directors.

1. Assigning a definition to the ‘corporate governance’

2. Introducing the Malaysian Code on Corporate Governance- hybrid approach- focuses on directors,

directors’ remuneration, shareholders, accountability and audit

3. Law reform

4. Training and education• Focus on directors,

company secretaries, audit committees, shareholders & investors

3. EMPHASIZING ON EDUCATION OF CORPORATEROLE- PLAYERS

1997 ASIAN

FINANCIAL CRISIS


TRAI

NIN

G F

OCU

S AN

D P

RIO

RITY

IMPACT TO THE ECONOMY

Domestic companies &

businesses

- Board of directors- Company

secretaries- Management- Shareholders- Employees- Auditors- Professionals

Approach: Re-alignment for integration into the New Economic Model (NEM)

Foreign investors

- Trade missions,- International

economic/ business meetings

- Embassies

Approach: Awareness on setting up, managing and winding-up companies

Universities & higher learning institutions

- Graduatingstudents.

- Lecturers

Approach: Future integration into the NEM

Schools

- Secondary and primary school students

Approach: Awareness through fun but educational activities - to prepare for future integration into the NEM

Members of the public

Approach: General awareness to be in alignment with the aspirations of the NEM

FOCUS: Strengthening the foundation for sustainable business practises; and Supporting the creation of entrepreneurial cultureHIGH

LOW

HIGH LOW

3. EMPHASIZING ON EDUCATION OF CORPORATE ROLE- PLAYERS (Cont)


4. ENTRENCHING THE BASICS OF CG - IDENTIFYTHE STRATEGIC AREA(S)

• “Consider a building with a few brokenwindows. If the windows are not repaired,the tendency is for vandals to break a fewmore windows. Eventually, they may evenbreak into the building, and if it'sunoccupied, perhaps become squatters orlight fires inside.”

• “Or consider a sidewalk. Some litteraccumulates. Soon, more litteraccumulates. Eventually, people even startleaving bags of trash from take-outrestaurants there or breaking into cars.”

Broken Windows TheoryJames Q. Wilson and

George L. Kelling


Keep proper accounting

records

Auditing of account

Tabling of account during

the annual general meeting

(AGM)

Lodgement of audited account

and annual return with SSM

Section 167 CA 1965• Company to keep

accounting records which sufficiently explain the transactions and financial positions of the company.

• Records to be kept in a manner to enable them to be audited

Section 143 CA 1965• A general meeting

of every company is held annually

Section 169 (1) CA 1965• Directors table the

company’s audited account of during AGM

Section 169 (4) CA 1965• The profit and loss

accounts and balance sheet of the company shall be duly audited before they are laid during the company’s AGM

Section 165 (1) CA 1965• Every company

having a share capital shall lodge the Annual Return together with audited account with SSM

1 2 3 4

4. ENTRENCHING THE BASICS OF CG - KEEP ITSIMPLE


5. COMMUNICATING CG TO THE STAKEHOLDER - INTHEIR LANGUAGE

Economic benefits of corporate governance• Contributes to economic prosperity and

competitiveness• Attracts investment• Facilitates access to credit facilities• Enhance profit performance• Structured management and clarity• Enhance operations and efficiency• Ensures long term business sustainability• Creates premium in the value/shares of a

company• Positive branding and reputation• Minimize (if not prevent) corporate fraud,

wastage, risk and mismanagement

Risk managementProject

management & monitoring

Strategic planning SOPs & procedures


• Khazanah Nasional’s Prudent Aggression approach:- Realisable asset value rose from RM50.9 billion in

May 2004 to RM112.6 billion as at Dec 2010- Net worth adjusted rose from RM33.3 billion in

May 2004 to RM75 billion as at Dec 2010

BLUE BOOK - KPI & Performance Mgt

GREEN BOOK -Enhancing Board

Effectiveness

RED BOOK - Reviewing & Revamping Procurement

Practices

SILVER BOOK - Achieving Value Through Social

Responsibility

ORANGE BOOK -Strengthening Talent

Management Practices

PURPLE BOOK -Optimizing Capital

Management Practices

YELLOW BOOK -Enhancing Operational

Efficiency & Effectiveness

5. COMMUNICATING CG TO THE STAKEHOLDERS -INSPIRE THEM


Corporate governance is not about laws and regulations per sebut more on understanding of concept and changing theattitude of economic role players - THE ULTIMATECHALLENGE FOR CORPORATE REGULATORS GLOBALLY


THANK YOU

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17. crf 2012 azryain borhan