The core principles of Corporate Governance

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 Accountability
• Corporate accountability refers to the obligation and responsibility to give an
explanation or reason for the company’s actions and conduct.

• Accountable in accordance with applicable law and provides guidance to the

Board of Directors in making decisions and monitoring the activities of the
executive bodies.

• Ensure that management is accountable to the Board.

• Ensure that the Board is accountable to shareholders.

• The Board of Directors should be made accountable to the shareholders for the
way in which the company has carried out its responsibilities.

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 Responsibility
• The Board of Directors should accept full responsibility for the powers that it
is given and the authority that it exercises.

• The Board of Directors are responsible for overseeing the management of

the business, affairs of the company, appointing the chief executive and
monitoring the performance of the company. 

• The Board of Directors should act in the best interests of the company.

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 Fairness

• Protect Shareholders rights.

• Ensure equal treatment to all shareholders including minorities and foreign

shareholders.

• Provide effective redress for violations

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 Transparency
• Transparency means openness, a
willingness by the company to provide
clear information to shareholders and
other stakeholders.
• Ensure timely.
• Clarify and make publicly known
the roles and responsibilities of the
board and management to provide
shareholders with a level of
accountability.

• Ensure accurate disclosure of • Transparency ensures that

information about all material facts stakeholders can have confidence
relating to its activities, including its in the decision-making and
financial situation, social and
management processes of a
environmental indicators,
company.
performance, ownership structure and
governance of the Company.

• Provide free access to such

information for all stakeholders.

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 Independence

• Free from personal influence of top management (for INEDs)

• Free from conflicts of interest or personal motivation (for directors)

• Independent Directors and Advisers - free from the influence of others.

• Procedures and structures are in place so as to minimise, or avoid

completely conflicts of interest.

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 Others important of CG principles
• Probity/honesty
• Not lying, cheating or stealing, fair and upright in dealing with shareholders and stakeholders and reporting
corporate information
• No ‘spin’ and manipulation of facts that could mislead shareholders

• Reputation
• Reflects the overall way in which the company and its directors are perceived by the market and in the wider
community.
• Influenced by code of ethics, principles of CG, corporate social responsibility, fair treatment of staff, attitudes
to customers, community involvement and willingness to obey the spirit as well as the letter of the law.

• Judgment
• Ability to reach and communicate meaningful conclusions.
• Ability to consider and evaluate various business issues.
• Ability to make decisions that enhance the well-being of the company.
• Non-judgemental approach to business and personal relationships.

• Integrity
• Steadfast adherence to strict moral or ethical codes
• • Highest standards of professionalism and probity.
• • Straightforward dealing and completeness (Cadbury Report).

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 Implementation of
Corporate Governance Framework

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 Rule based
Characteristics
In Essence
•Behavior is underpinned and prescribed by
statute of the country’s legislature
•Compliance is enforceable in law
•Mandatory for companies to adopt and
implement the provisions of law or regulation
pertaining to CG practices.
•Disclose compliance.
•Any deviation may result in penalties or
companies can face legal act
•Very clear – legal requirements are clearly
specified for companies to abide.
•Standard rules applied to all companies
regardless of size, financial standing and
nature of business.
•Transgressions are punishable – seen as
criminal act, thus may be an effective
prevention.
•In theory, it is straight-forward – easy to
determine and see if companies have
complied or not
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 Principle based
In Essence
•Compliance to CG practices is required under the
stock market listing rules.
•Non-compliance is allowed based on the premise of
full disclosure of all areas of non-compliance.
•Given flexibility to interpret and implement the
recommendations and requirements of the code.
•Relies on market mechanism to value the extent of
non-compliance.
• comply or explain.
•Markets then signal to the company when an
unacceptable level of compliance is reached.
Characteristics
•Focuses on the objectives rather than the method to
achieve the objectives.
•e.g. Audit committee’s main role is to support
the oversight function of the board
•e.g. Minority shareholders should be treated
fairly
•Universality of application – can be simply applied in
various countries with different jurisdictions.
•
•Allows flexibility for companies to apply the codes
depending on their business needs and capability i.e.
•
•Adopted by countries that empower stock exchange
body to set standards for companies to follow
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 Hybrid approach…. In Essence
• Adopted in Malaysia and the UK

• Combines mandatory laws and regulations with standards and voluntary

principles-based codes of best practices

• Flexible - allows companies to develop their own approach to CG based on

their business needs, capability and own circumstances but within the
guidelines provided

• To explain any deviation from the provisions of the codes to shareholders or

relevant regulators in the annual report

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 CARE approach….. (MCCG 2017)
• Encourages companies to clearly identify the thought process involved in practising
corporate governance.

• Set out the processes involved in practicing good corporate governance.

• Departed from ‘comply or explain’ to ‘apply or explain an alternative’.

• To facilitate the mind-set and culture change and achieve a meaningful application
of good corporate governance practices.

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 Comprehend
• Leaders need to first understand the business case for embracing good corporate
governance

• Incorporate the integral role of economic, environmental and social

responsibilities towards the company’s performance.

• Incorporate long-term sustainability into their core decision-making processes

to ensure that companies operate successfully and sustain growth.
•
• Ensure employees understand corporate governance requirements

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 Apply

• Companies need to apply the principles and practices in form and

substance -a shift to a mind-set and culture change.

• Encourages the board to take cognisance of the environment that their

companies operate.

• Should they are unable to apply the best practices they need to apply a
suitable alternative practice to meet the intended outcome.

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 Report
• Disclose their application of the MCCG practices in the annual reports.

• Provide meaningful explanation on how it has applied each practice.

• If unable to apply they must give a meaningful explanation for the deviation
and disclose the alternative and explain how it achieves the intended
outcome.

• Also provide information for shareholders and potential investors for

them to assess the stewardship, valuation and ownership structure so that
the company can attract capital and maintain confidence

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 Corporate Governance Structures
• Legal and regulatory framework - e.g. Bursa Malaysia, Securities Commission,
Companies Commission of Malaysia etc.
• Independent board of directors
• Directors and independent non-executive directors
• Board committee - Audit, nomination, remuneration and risk management
committees
• Shareholders – institutional, family, large, government
• External and internal auditors
• Internal control and risk management systems
• Stakeholders – investors, employees, customers, suppliers, government,
community.

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