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Keynote Address
YB Tuan Lim Guan Eng, Minister of Finance Malaysia

at the Launch of the Corporate Governance Monitor 2019

6 May 2019

(read by YB Tuan Tony Pua Kiam Wee, Political Secretary to the Minister of Finance)


 

Yang Berbahagia Datuk Syed Zaid Albar,
Chairman, Securities Commission Malaysia

Ladies and Gentlemen,

1. Good morning and Salam Sejahtera. Firstly, I would like to convey YB Minister of Finance’s regrets for not being able to be here to officiate the launch of the Corporate Governance Monitor 2019. I am sure a lot of effort has been put in by the SC in putting together this report which contains very useful data and observation which the corporate community including boards and shareholders can use to drive CG excellence in corporate Malaysia.

2. I commend the SC for their commitment and relentless efforts in promoting corporate governance in order to build an environment of trust, transparency and accountability in the capital market.

Ladies and Gentlemen,

3. In order to ensure that the financial market continues to serve the real economy in terms of access to long term capital and investments, corporate governance must be complemented by good public governance. Public governance provide rules and stability needed for planning investment and facilitates a smooth and productive interaction between the Government and the general public.

4. The new dawn in Malaysia after 9 May 2018 is an inflexion point, which brings good governance, key institutional, political and economic reforms to the fore to transform the nation, and take it forward.

5. There can be no better case study of public and corporate governance than the very scandal – 1MDB, which brought down a ruling government which has been in power for more than 60 years. The outrageous abuse of power by the then Finance and Prime Minister, the scale of embezzlement and misappropriation which took place involving tens of billions of ringgit have inflicted a heavy toll to the nation, making Malaysia the global capital of kleptocracy.

6. Hence, the new Government’s top agenda is to restore credibility and trust in the Government and public institutions by upholding integrity and fighting corruption. We must ensure that there will be no opportunity for another 1MDB to rear its ugly head in this country, whether by the current leadership or any future leadership who become corrupt with power. To quote the Prime Minister Tun Dr Mahathir Mohamad himself, “never again”.

7. The Government has launched the National Anti-Corruption Plan (NACP) in January this year to achieve the national aspiration of making ‘Malaysia known for her Integrity and not Corruption’ and build a corrupt-free nation that upholds transparency and accountability. The Parliament has even introduced a corporate liability provision in the MACC Act which where a commercial organisation and its directors may be found liable for acts of corruption committed by any persons associated with the organisation, including its employees.

8. Hence in line with restore the country’s health and credibility, we are pleased to note that the Malaysian Code on Corporate Governance recommends that boards establish a Code of Conduct and Ethics which contain policies and procedures on anti-corruption. I implore all listed companies to implement this practice as corruption inhibits economic growth and affects business operation.

9. We are also pleased that, as mentioned by Datuk Syed, the SC will be reviewing the anti-corruption measures of listed companies as part of its efforts to support the implementation of the National Anti-Corruption Plan and this review will be included in next year’s 2020 CG Monitor. Let us all work together towards achieving zero tolerance for corruption at both public and private sector.

Ladies and gentlemen,

10. Although Large Companies are expected to implement the higher requirements in the MCCG, I am pleased to note that a number of small and mid-cap companies have done very well by outnumbering the Large Companies when it comes to the adoption of certain practices; this includes disclosing the remuneration of members of senior management, which will help stakeholders evaluate pay and performance. I expect to see more companies, in particular Large Companies1 adopting this practice this year.

11. One of the CG Monitor’s thematic review is on CEO remuneration. It is obvious from the data that some companies have CEOs who are paid very high remuneration (17 times more than the median CEO pay highlighted in this report) despite these companies having reasonably average market capitalisation.

12. As the executive compensation environment continues to evolve and the benchmark best practices continue to change, board members as fiduciaries must steer the company towards a sustainable future by adopting sound ethical, and legal governance and financial management policies – this includes ensure that pay is aligned with performance.

13. We should however not limit ourselves to just looking at CEO remuneration. If Malaysian companies perform, the contributions of their employees should be duly rewarded. Compensation of employees in Malaysia as a percentage of GDP stood at only 35.2% in 2017 whereas countries such as Singapore and South Korea are well above 40%. Hence corporate Malaysia needs to play its part to ensure that Malaysian workers earn a decent wage with good work environment. In this context, we look forward to the SC following up on its analysis of CEO remuneration with a review of key pay ratios and wage levels of employees in listed companies in the next year’s CG Monitor.

14. Board diversity, including gender diversity is critical to ensure different perspectives are brought to board discussions and reduce the likelihood of boards being ‘trapped’ by groupthink or biases. We have been making progress in improving the participation of women on boards as reported in the CG Monitor 2019, but we expect to see this progress accelerating as there should be no excuse or reason to maintain an all-male board or one which lacks the skillsets required to lead the company.

15. We must congratulate the Securities Commission for its leadership in promoting diversity, particularly at the boardroom level, motivated not for political correctness but as a means to improve corporate governance. The Corporate Governance Monitor 2019 launched today shows that SC’s efforts have borne fruit – gender diversity in Malaysia’s boardrooms have improved. Women had only accounted for 16.6% of board members in our top 100 listed companies back in December 2016. In the two years to December 2018, this increased by seven percentage points to 23.68%. In addition, as recently as January 2018, we had 7 out of our top 100 listed companies with no women in their boards. I am happy to share that since February 2019, we no longer have all male boards among our top 100 listed companies.

16. While we celebrate the progress achieved, we certainly cannot rest on our laurels. Our efforts to enhance the diversity of corporate Malaysia needs to next focus on the following three areas. First, we need to continue to work towards our target of 30% women directors by end 2020. An additional statistic to monitor is the number of listed companies with at least 30% women directors, which currently stands at only 134 companies.

17. Second, towards better corporate governance, we must go beyond just the boardroom as also champion diversity in leadership and top management. As at June 2018, women accounted for 28% of senior management positions in all Malaysian listed companies, higher than the Asia Pacific average of 23%. We certainly welcome efforts by SC to continue monitoring this metric and promote the agenda of diversity in top management.

18. Third, we should promote and embrace diversity in a fuller sense and look not just at gender diversity but also in terms of age and ethnicity. I read with interest in the CG Monitor report how 24% of independent directors had a tenure of more than 9 years with the longest serving independent director having a tenure of 40 years. As mentioned in the CG Monitor, boards should take the opportunity to refresh its composition to meet the challenges ahead. In embracing diversity together, just like how we have moved on from all male boards, we look forward towards the future, to moving on from boards made up entirely of retirees or of just one race.

Ladies and gentlemen,

19. Upholding the rule of law, applying the principles of transparency, accountability, integrity and good governance is critical to ensure this nation prospers peacefully and harmoniously. I commend the companies, which make no compromises on business integrity and good governance – and those with gaps to bridge should do so urgently as good governance is not a nice-to-have but a must-have.

20. On that note, I thank the Securities Commission Malaysia for inviting me this morning and I am pleased to launch the inaugural edition of the Corporate Governance Monitor 2019. It is indeed auspicious to launch the CG Monitor on the 1st day of Ramadhan and allow me to wish happy fasting to all Muslims.

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