On 26 April 2017, the Securities Commission Malaysia released the new Malaysian Code on Corporate Governance (“new Code”). Superseding the earlier 2012 edition, the new Code puts greater emphasis on the internalisation of corporate governance culture. While mainly targeted at listed companies, non-listed entities including state-owned enterprises, small and medium enterprises (SMEs) and licensed intermediaries are also encouraged to embrace the new Code to enhance their accountability, transparency and sustainability.
The first batch of companies that are expected to report their application of the practices in the new Code will be those with a financial year ending 31 December 2017.
Key features of the new Code
1. New structure encourages a more results-driven approach
The new Code has 36 Practices to support three Principles:
Principle A: board leadership and effectiveness,
Principle B: effective audit and risk management, and
Principle C: integrity in corporate reporting and meaningful relationship with stakeholders.
Practices are actions, procedures or processes which companies are expected to adopt to achieve the Intended Outcome. The Intended Outcome provides companies with the line of sight on what they will achieve through the Practices.
The new Code also adopts a proportional approach taking into account the varying sizes and complexities of listed companies. Certain best practices are only applicable to Large Companies, that is, companies on the FTSE Bursa Malaysia Top 100 Index or companies with market capitalisation of RM2 billion and above at the start of the companies’ financial year.
2. Companies are expected to CARE
The new Code introduces the Comprehend, Apply and Report (CARE) approach. The CARE approach entails a shift from the previous “comply or explain“ approach to an “apply or explain an alternative” approach, which is meant to promote a more meaningful application of good corporate governance practices and to encourage listed companies to invest more thought and consideration when adopting and reporting on their corporate governance practices.
Under this new approach, where there is a departure from a Practice, the company must (i) provide an explanation for the departure and (ii) disclose a suitable alternative practice it has adopted to meet the Intended Outcome. Large Companies are further required to disclose actions which they have taken or intend to take and the timeframe required for them to achieve application of the Practice.
3. Companies are encouraged to STEP UP
The introduction of the “Step Up” practices is meant to encourage companies to go a step further to strengthen their governance practices and processes. Companies that aspire to achieve excellence in corporate governance in particular, Large Companies, should consider the adoption of “Step Up” practices.
4. Practices have been introduced or enhanced
Here are some of the practices that have been introduced or enhanced under the new Code:
5. Still, the new Code lacks bite
Compliance with the new Code is not mandatory. Nevertheless, the new Code serves as a benchmark for companies that aspire to adopt strong corporate governance practices and provide fair and meaningful disclosure for the benefit of all stakeholders.
If you have any questions or require any additional information, please contact Ahmad Zulkharnain Musa or the ZICO Law partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.