The COVID-19 pandemic reshaped the corporate landscape of markets all over the world. Survival has meant adapting to ongoing uncertainty and change. But as we enter a new era of economic promise, Asia-Pacific businesses are proactively pursuing corporate governance to secure a prosperous future for themselves and the broader economy.
In this article, CEO of BoardRoom Malaysia, Samantha Tai, explains the importance of corporate governance in Malaysia and how leaders can establish values-based governance practices for the best outcomes. We will also explore the pivotal role of the company secretary in advising and implementing best-practice corporate governance initiatives effectively.
What is corporate governance?
At an organisational level, the meaning of corporate governance lies in achieving higher performance, acting with integrity and maximising value to stakeholders. Businesses that meet corporate governance standards are more likely to achieve corporate objectives, attract investment and outperform competitors.
Importantly, Group-wide corporate governance also helps reduce the risk of malpractice and subsequent penalisation.
“Under Section 17A of Malaysia’s Anti-Corruption Commission Act, organisations can now be held liable for the corruption act of an individual officer,” Samantha says. “So companies need to make sure they have adequate procedures in place.”
Corporate governance itself is not a legal requirement for all businesses in Malaysia, but Samantha says its alignment with fiduciary duty makes it an important investment for any leader.
“In BoardRoom training sessions, we start by explaining a director’s fiduciary duty to the Commonwealth to always prioritise the best interests of the company, minimise conflicts of interest and act in good faith,” she says.
“In Malaysia, fiduciary duty is taken very seriously, with regulators taking action against directors who neglect their duty — including independent directors.”
Successful corporate governance frameworks involve:
- the development of customised policies; and
- the subsequent implementation of those policies.
Stewardship of this function usually resides with the company secretary.
How company secretaries drive good governance
Historically, the company secretary performed a purely administrative role and had very little authority. Today, the company secretary performs a wide range of vital responsibilities for the company, as both a senior business manager and a statutory officer.
Alongside their key role in the administration of important undertakings such as company incorporation, company secretaries serve as the link between the board of directors, senior management and the company’s stakeholders (including regulatory bodies). This includes leveraging digital technologies, such as board management and ESG software, to strengthen board and shareholder processes and improve corporate governance. In addition, their thorough knowledge of local regulations means they can ensure corporate governance standards are implemented, followed and regularly reviewed.
Samantha says the current role of the company secretary is clearly set out in the Malaysian Code on Corporate Governance.
“In Malaysia, the views of the company secretary on corporate governance are sought because they attend all board meetings, know the relevant policies and understand compliance requirements,” she says. “They advise the board on corporate governance processes that need to be put in place. This may relate to the board composition or the company’s policies and code of ethics, for example.”
They also help publicly listed companies demonstrate corporate governance in their annual report, including mention of any alternative methods used to achieve the same objective.
Company secretarial duties have become so synonymous with corporate governance that the UK’s Institute of Company Secretaries and Australia’s Institute of Chartered Secretaries and Administrators have both rebranded to the ‘Chartered Governance Institute’, with other regions expected to follow suit.
How to improve your corporate governance
Good corporate governance will become increasingly important in the years to come, with regulators expected to introduce new recommendations for both public and private businesses. Organisations that continue to meet best-practice standards as they evolve will be in a strong position to grasp new opportunities and meet market demands.
By taking the following steps, you can lead your organisation towards stronger corporate governance.
1. Appoint a qualified company secretary in Malaysia
The first step to improving your corporate governance is ensuring your business complies with current rules and applies best practices, particularly those prescribed in the Malaysian Code on Corporate Governance. This also means adapting to new standards as they come into effect.
For example, the Securities Commission Malaysia recently rolled out group-wide governance requirements for listed corporations.
“Publicly listed companies already need corporate governance because they must report to the stock exchange,” Samantha explains. “But now, on top of that, they must ensure corporate governance is practised in all their subsidiaries too — regardless of whether the subsidiaries are themselves listed entities or located in Malaysia or overseas.”
To satisfy this requirement, an experienced company secretary would assist with the establishment of a group-wide framework for corporate governance. The framework would include a code of conduct, as well as policies and procedures for corporate governance issues such as whistleblowing, anti-corruption, board diversity and sustainability.
Company secretaries help uphold corporate governance by:
- Staying across changing standards
- Checking compliance levels
- Conducting gap analyses
Company secretarial services providers are a popular choice for leaders who want peace of mind about receiving specialist advice that’s tailored to their organisation.
2. Develop detailed, customised policies
Despite Malaysia’s relatively strong corporate governance performance, the country still experiences corporate irregularities month to month. Failure to meet expectations tends to come down to internal perceptions of corporate governance as a mere box-ticking exercise, with the resulting policies lacking sufficient length and detail.
Demanding workloads at a senior level can lead to quick copy-paste solutions.
“But corporate governance is not just copywriting,” Samantha warns. “For corporate governance frameworks to work, you have to bring your relevant management team together to discuss their development, as there are many tools available.”
The most effective corporate governance policies:
- are comprehensive;
- reflect the values of the organisation;
- suit the organisation’s industry and size; and
- detail how good governance is actively applied.
3. Adopt integrated reporting
While it is important to ensure your corporate governance policies and annual reports are up to standard, good governance can’t be achieved through documentation alone. Samantha says that integrated reporting is likely to become mandatory in the coming years.
“Integrated reporting is a process founded on integrated thinking for communicating how an organisation’s strategy, governance, performance and prospects lead to value creation,” Samantha says. “It makes your annual report more meaningful.” Embarking on an integrated reporting journey allows for better employee engagement and value creation, rather than looking at reporting as a compliance exercise alone.
All members of an organisation have a role to play in pursuing good governance, so it is also important to spend time demonstrating the value of corporate governance to board members and staff. You can do this by explaining how corporate governance practices are important tools for enhanced company performance, rather than arbitrary obligations that must be met.
“Successful corporate governance is integrated into the day-to-day operations of the company,” Samantha says. “It’s not just a policy for compliance.”
4. Incorporate and prioritise ESG in your company culture
Aligning your company culture with your Environmental, Social and Governance (ESG) initiatives, will help employees better understand corporate governance and the role they play in it. Investing in an ESG professional can help you communicate important messages, maintain up-to-date ESG reporting and ultimately drive a positive company culture.
According to Samantha, many leaders are so focused on navigating a challenging economy that they deprioritise ESG issues. “But remember, the ‘social’ part of ESG is about your employees,” she says. “At the end of the day, taking care of your employees will impact your bottom line.”
In the interests of top-down corporate governance, regulators are also encouraging greater board involvement in ESG initiatives, with country-specific compliance requirements changing regularly. Board directors are in the best position to account for ESG risks and make decisions to lift shareholder value. Because of this, greater responsibility is placed on securing a comprehensive ESG strategy that benefits the company, its shareholders, employees and the environment.
Start practising good governance today
The effectiveness of your corporate governance efforts in the years to come will determine your business success in the short and long term.
It is important that your company board and executive staff champion your governance framework, but it is equally important that your company secretary drives its success. For the best results, choose a company secretary that offers varied expertise, strong ethics and outstanding communication skills.
Having a reliable company secretary handling your corporate governance also allows your executive team to focus on key business objectives, such as taking your company digital.
Contact BoardRoom’s corporate secretarial experts to discuss how we can help your business reach its corporate governance goals.
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