2024 Market IQ: Malaysia

Below are highlights from ISS’ newly released 2024 Market IQ – Malaysia. The full report is available to institutional subscribers by logging into ProxyExchange then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.

BACKGROUND

Malaysia has been pushing regulatory reforms over the past years which are aimed to strengthen corporate governance practices in the market.

In 2011, the Securities Commission of Malaysia (SC) published the Corporate Governance Blueprint 2011 (CG Blueprint) which set out the five-year strategic directions and specific action plans to be implemented to achieve the goal of further developing corporate governance practices in Malaysia. The CG Blueprint produced amendments to listing requirements, updates to the Malaysian Code on Corporate Governance (CG Code), formulation of the Malaysian Code for Institutional Investors, Bursa Sustainability Framework and Toolkit, and the Companies Act 2016.

The CG Blueprint was followed by the Corporate Governance Strategic Priorities 2017-2020 (CG Strategic Priorities) which focused on enhancing the corporate governance regulatory framework, strengthening the corporate governance ecosystem, promoting greater gender diversity on boards, embedding corporate governance culture early in the life cycle of companies and among youth, and leveraging technology to enhance monitoring of corporate governance practices and shareholder activism.

In 2021, the SC published the CG Strategic Priorities 2021-2023 which outlined the areas that require further development and regulatory changes. The priorities were aimed to improve in board quality, investor stewardship, disclosure of comprehensive corporate governance data, and engagement with the youth on corporate governance.

The SC also updated the CG Code in 2021. The changes to the introduced best practices and guidance to (i) improve board policies and processes; (ii) strengthen board oversight and the integration of sustainability considerations in the strategy and operations of companies; and (iii) encourage the adoption of the best practices. Companies also publish a corporate governance report that summarizes the best practices under the CG Code that were adopted by the company.

Bursa Malaysia also introduced new listing requirements in 2022 to improve board diversity, independence, and quality. The new listing requirements promotes the presence of women directors on board and board refreshment and independence by limiting the tenure of independent directors. These new listing requirements became fully effective in 2023.

KEY CORPORATE GOVERNANCE FEATURES IN MALAYSIA

Positive features:

• The notice meeting AGMs must be disclosed at least 21 days prior to meeting date. For other meetings, it should be at least 14 days before the meeting date.
• Companies are required to have at least one-third independent boards. The CG Code recommends higher thresholds of independence, majority for large cap companies and at least half for the other companies.
• The regulations encourage the presence of women of boards of listed companies. The listing requirements mandate a woman on the board while the CG Code recommends a higher threshold of at least 30 percent of the board should be women.
• The listing requirements promote board diversity and independence, as companies are required to appoint women directors and limits the tenure of independent directors to 12 years.
• The listing requirements mandates companies to have at least one woman on the board. The CG Code recommends a higher threshold of at least 30 percent of the board.
• Listed issuers are required to disclose a narrative statement of its management of material economic, environmental, and social risks and opportunities (Sustainability Statement). Such statement should explain the governance structure in place, the scope and basis for the scope of the Sustainability Statement, material sustainability matters, climate-related disclosures, and whether the statements has been subjected to an internal review or independent assurance.

Room for improvement:

• Most companies comply with the provisions of the Listing Requirements. However, broader adoption of the best practices under the CG Code, which are stricter, is an ongoing development.
• Bursa Malaysia is looking to improve the transparency of executive compensation. Bursa Malaysia is proposing to require the disclosure of the breakdown of the compensation of CEOs of listed corporations, close-end funds, and trustee-managers of business trusts, on a named basis.
• Most companies do not disclose performance and vesting conditions for share options and/or share awards. This remains a concern for the market as the issuance limit of equity plans may be up to 15 percent. In addition, the exercise price of share options may be at a discount of up to 10 percent to the five-day weighted average market price of the shares at the time of the offer.