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Malaysia Code of Corporate Governance 2012 – An Overview and Summary

By: Staff Editor
Date: March 20, 2013

The Malaysian Code on Corporate Governance 2012 (MCCG 2012) focuses on strengthening board structure and composition as well as recognizing the role of directors as active and responsible fiduciaries. The MCCG 2012 supersedes the 2007 Code. It sets out eight broad principles and 26 specific recommendations on structures and processes which companies should adopt in making good corporate governance an integral part of their business dealings and culture. This article provides a brief overview of its guidelines:

Principle 1 – Establish Clear Roles and Responsibilities

The responsibilities of the board, which should be set out in a board charter, include management oversight, setting strategic direction premised on sustainability and promoting ethical conduct in business dealings. It is recommended that the board should:

Establish clear functions reserved for the board and those delegated to management.
Establish clear roles and responsibilities in discharging its fiduciary and leadership functions.
Formalize ethical standards through a code of conduct and ensure its compliance.
Ensure that the company’s strategies promote sustainability.
Have procedures to allow its members access to information and advice.
Ensure it is supported by a suitably qualified and competent company secretary.
Formalize, periodically review and make public its board charter.

Principle 2 – Strengthen Composition

The board should have transparent policies and procedures that will assist in the selection of board members. The board should comprise members who bring value to board deliberations. It is recommended that:

The board should establish a Nominating Committee which should comprise exclusively of non-executive directors, a majority of whom must be independent.
The Nominating Committee should develop, maintain and review the criteria to be used in the recruitment process and annual assessment of directors.
The board should establish formal and transparent remuneration policies and procedures to attract and retain directors.

Principle 3 – Reinforce Independence

The board should have policies and procedures to ensure effectiveness of independent directors. It is recommended that:

The board should undertake an assessment of its independent directors annually.
The tenure of an independent director should not exceed a cumulative term of nine years. Upon completion of the nine years, an independent director may continue to serve on the board subject to the director’s re-designation as a non-independent director.
The board must justify and seek shareholders’ approval in the event it retains as an independent director, a person who has served in that capacity for more than nine years.
The positions of chairman and CEO should be held by different individuals, and the chairman must be a non-executive member of the board.
The board must comprise of a majority of independent directors where the chairman of the board is not an independent director.

Principle 4 – Foster Commitment

Directors should devote sufficient time to carry out their responsibilities, regularly update their knowledge and enhance their skills. It is recommended that:

The board should set out expectations on time commitment for its members and protocols for accepting new directorships.
The board should ensure its members have access to appropriate continuing education programs.

Principle 5 – Uphold Integrity in Financial Reporting

The board should ensure financial statements are a reliable source of information. It is recommended that:

The Audit Committee should ensure financial statements comply with applicable financial reporting standards.
The Audit Committee should have policies and procedures to assess the suitability and independence of external auditors.

Principle 6 – Recognize and Manage Risks

The board should establish a sound risk management framework and internal controls system. It is recommended that:

The board should establish a sound framework to manage risks.
The board should establish an internal audit function which reports directly to the Audit Committee.

Principle 7 – Ensure Timely and High Quality Disclosure

Companies should establish corporate disclosure policies and procedures to ensure comprehensive, accurate and timely disclosures. It is recommended that:

The board should ensure the company has appropriate corporate disclosure policies and procedures.
The board should encourage the company to leverage on information technology for effective dissemination of information.

Principle 8 – Strengthen Relationship between Company and Shareholders

The board should facilitate the exercise of ownership rights by shareholders. It is recommended that:

The board should take reasonable steps to encourage shareholder participation at general meetings.
The board should encourage poll voting.
The board should promote effective communication and proactive engagements with shareholders.

Additional Resources

Read the Malaysia Code of Corporate Governance 2012 in full here.