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MGM 4136

SEMESTER 2010/2011 (2)







Corporate Governance

A definition by the Finance Committee on Corporate Governance in Malaysia in the Report

on Corporate Governance (2002) stated that: “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 realizing long term
shareholder value, whilst taking account the interests of other stakeholders”. This indicates that
corporate governance is not only applied to the shareholders but the other stakeholders as well.
The principal stakeholders are the shareholders, the board of directors, employees, customers,
creditors, suppliers, and the community at large.

Corporate governance on the other hand, concerns on the effectiveness

of corporate governance as an assurance in protecting the invested funds
and to generate returns. As highlighted by Scheifer and Vishny (1997), corporate
governance mechanisms assure investor in organizations that they will receive adequate returns
in their investments. To relate this with the crisis, it is concluded that efforts on shareholders
protection were inadequate during the crisis and as such contributed to the destruction of the
value of their investment.

Development Of Corporate Governance In Malaysia

The main sources of the Corporate Governance reforms agenda in Malaysia, that provides
guidelines on the principles and best practices in corporate governance and the direction for the
implementation as well as charts the future prospects of corporate governance in Malaysia:
i. Malaysian Code on Corporate Governance.
ii. Capital Market Master Plan (CMP).
iii. Financial Sector Master Plan (FSMP)
Malaysian Institute of Corporate Governance (MICG)

MICG was established in March 1998 by the High Level Finance Committee on Corporate
Governance. It is a non-profit public company limited by guarantee, with founding members
consisting of the Federation of Public Listed Companies (FPLC), Malaysian institute of
Accountants (MIA), Malaysian Association of Certified Public Accountants (MICPA),
Malaysian institute of Chartered Secretaries and Administrators (MAICSA), and Malaysian
Institute of Directors (MID).

MICG is dedicated to facilitating businesses and corporate development in the country

through improved corporate governance best practices. Corporate governance has succeeded in
attracting a good deal of public interest because of its apparent importance for the economic
health of corporations and society in general. However, the concept of corporate governance
should be defined to suit the needs of our own nation because it potentially covers a large
number of distinct economic phenomenon of which we are different from other developing
nations. Corporate governance is not a one size that fits all.

Issue of Corporate Governance

One of the corporate governance issues today in the field of corporate governance is not
whether most listed companies comply with the various provisions of the Combined Code,
Sarbanes-Oxley, King, etc. The key point is whether the top management of large organizations
especially, but actually of that of business in general, is seen as possessed of integrity in the eyes
of the general public. This is the spirit that gave support to the principle of setting up the
Cadbury Committee, not simply a desire to lay down some rules on the financial aspects of
corporate governance to prevent innocent fund managers being misled by greedy directors. And
it is this integrity - perceived and actual - which underlines the importance of corporate
governance, as it is the tool by which integrity can be encouraged, measured and projected.

Other major issue is of renewed concern for shareholders, that of transparency. Disclosures
of all sorts of corporate practices related to the governance system, to accounting, and to the
means of evaluating executive performance and compensation are being promoted by
shareholders. The SEC has unanimously proposed a rule requiring greater disclosure on how
corporate directors are selected, including policies on how directors are nominated, the minimum
qualifications to serve on the board and how candidates came to the attention of the board.


The Financial Reporting Council, the UK financial reporting watchdog stated that
shareholders have more say in choosing the firms which audit corporate accounts. The
suggestion is among a raft of ideas the FRC is putting forward for debate in a bid to improve
corporate reporting in the wake of the financial crisis. The FRC argues annual reports have
become too cluttered, reducing their value for investors. As FRC said, there should be greater
investor involvement in the process by which auditors are appointed and they recognise that
although shareholders confirm auditor appointments, management is perceived to determine the
appointment (or reappointment) and remuneration of auditors and that, therefore, auditor
independence is compromised. There is a case for the independence of the decision to be
reinforced by the Audit Committee seeking greater shareholder involvement. The comments
come in the new Effective Company Stewardship: Enhancing Corporate Reporting and Audit

There are two options. Either company audit committees should be required to explain why
they appointed the auditor, or they could discuss the appointment “with a number of principal
investors” and then report on that consultation to shareholders generally.


Abdul Hadi bin Zulkafli, M.Fazilah bt. Abdul Samad, Md Ishak Ismail (1997) “Corporate
Governance In Malaysia”.