WEEK 6

DIRECTORS
Pt 1
 LEARNING OUTCOMES SYLLABUS COVERAGE
1. Explain the qualification and disqualification of a director 1. Types of Directors
2. Recognize the different types of directors, understand the • Managing Director
concept of independent directors • Executive Director
3. Distinguish persons deemed connected with a director • Independent (non-executive) Director
4. Explain the duties, code of ethics, responsibilities and • Alternate Director
liabilities of director • Associate Director
5. Understand the best practices regarding board of directors 2. Number of directorships
3. Appointment, reappointment
• First directors
• Subsequent/Additional directors
4. Removal, retirement and rotation
5. Disqualification
• Death
• Statutory Provisions
• Provision in Articles of Association
Chairman of the Board
Management power, duties and responsibilities
Transactions Involving Directors;
Disclosure of Interests
Directors Remuneration,
Directors Continuing Education
Code of Ethics of Directors
• Objectives
• Contents of the Code of Ethics
Introduction
The governance of a company
Meaning of director
Minimum number of directors
DIRECTORS - INTRODUCTION

The governance of a company Minimum number of directors

196(1) minimum number of directors:
Constitution, Statutory
a. private company, 1 (one) director
provisions (CA2016 etc.)
b. public company, 2 (two) directors.
Legal Board of 196(2) A director must be
Incorporation
entity Directors - a natural person
- > eighteen years of age
196(4) the minimum number of directors —
a) must ordinarily reside in Malaysia by having a principal place of
Members residence in Malaysia; and
b) Does include an alternate or substitute director.

BURSA LISTING REQUIREMENTS

Meaning of director
“director" includes any person occupying the position of director of a
corporation by whatever name called and includes a person in accordance
with whose directions or instructions the majority of directors of a
corporation are accustomed to act and an alternate or substitute director.
2(1) CA2016
See also de facto director, shadow director CWM p218.
15.02 Composition of the board of directors
(1) If the number of directors of the listed issuer is not 3 or a multiple of 3, then the
number nearest 1/3 must be used. (3) In the event of any vacancy in the board of
directors, resulting in non-compliance with subparagraph (1) above, a listed issuer
must fill the vacancy within 3 months.
15.06 Restriction on directorships in listed issuers
(1) A director of an applicant or a listed issuer must not hold more than 5 directorships in
listed issuers
QUALIFICATION AND
DISQUALIFICATION
QUALIFICATIONS/ DISQUALIFICATIONS
Qualifications
196(2) A director must be
- a natural person
- > eighteen years of age

Disqualified Additional BURSA REQUIREMENT

• Not in accordance with S196(2)
• 198(1) (a) Undischarged bankrupt (local or overseas)
• 198(1)Convicted (local or overseas) for offences
(b) relating to the promotion, formation or management
of a corporation
(c) involving bribery, fraud or dishonesty
(d) under sections 213,217,218,228,539 CA2016
• Disqualified by the court under section 199
• An auditor of the company
15.05 Qualification, vacation of office and removal of directors
(1) A listed issuer must ensure that no person is appointed or
allowed to act as a director of the issuer or be involved
whether directly or indirectly in the management of the
issuer, including acting in an advisory capacity in relation to
the issuer, if
(c) has been convicted by a court of law of an offence under
the securities laws or the corporations laws of the listed
issuer’s place of incorporation, within a period of 5 years
from the date of conviction or if sentenced to imprisonment,
from the date of release from prison, as the case may be.

Disqualification
Conviction under s213,217,218, 228 and 539

under S 199
(Next slide)
213 Failure to act in the best interest of the company, with skills and diligence
217 Failure to act in the best interest of the company by a nominee director
218 Acting against prohibition against improper use of company property, position, etc.
228 Failure to observe restriction on transactions with directors, substantial shareholders or connected persons
539 Failure to keep proper accounts
QUALIFICATIONS/ DISQUALIFICATIONS – S199 DISQUALIFICATION

CAUSES of ACTION
199(1)(a) A person within the last 5 (five) years, was Official receiver 1
• a director of 2 (two) or more companies (registrar will be
→ which went into liquidation a party) Notice of
Within intention to
→ resulting from the company being
14 days apply for an
insolvent
→ due to his conduct as a director which order.
contributed wholly or partly to the CCM
liquidation

199(1)(b) A person contravenes the duties of a director

2
199(1)(c) A person habitually contravenes CA2016

require any person - apply to court to make an order to

Court make order to disqualify 4 disqualify that person from acting
• to furnish the 3 or holding office as a director or
the person from acting or holding Court with any
office as a director or promoter of information promoter of a company, or be
a company, or be concerned with relating to the concerned with or taking part in the
or taking part in the management company's affairs, management of a company
of a company whether directly or • to produce and whether directly or indirectly
indirectly. permit inspection
of books or
Effective for 5 (five) years documents
starting from the date of the relevant to the
company.
order
QUALIFICATIONS/ DISQUALIFICATIONS – overcoming disqualification

198(3) Undischarged bankrupt (local or overseas)

Can be appointed by leave of -
a. the Official Receiver; or
b. the Court provided that a notice of intention to apply for leave has been served on the Official Receiver and the Official Receiver is
heard on the application

198 Convicted (local or overseas) for offences

Disqualified by the court under section 199

198(6) Automatic qualification

After the expiry of five years calculated from the date he is convicted or if he is sentenced to imprisonment, from
the date of his release from prison
198(4/5) Leave of the Court
a. give the Registrar a notice of not less than 14 days of the intention to obtain court’s leave
b. make the Registrar a party to the proceedings
APPOINTMENT AND TERMS OF APPOINTMENT
APPOINTMENT IN GENERAL

1st director
202. (1) A person named as a director in the application for incorporation
of a company.
Will hold office as a director from the date of incorporation until ceases to
hold office as a director.

Subsequent directors

Directors' consent required

201. A person appointed as a director of a company must consent in
writing to be a director and make a declaration that he is not disqualified
from being appointed or holding office as a director of a company

Register of directors, managers and

secretaries must be updated and ROC
notified – all within 14 days
APPOINTMENT IN GENERAL

202 (3) Additional director

Subject to the constitution, the Board may, at any time, appoint a director in addition to existing director and the
director so appointed will hold office—
(a) in the case of a public company, until the next annual general meeting; or
(b) in the case of a private company, in accordance with the terms of appointment.

Appointment of directors of public company to be voted on individually

203. (1) At a general meeting of a public company, a motion for the appointment of two or more persons as
directors by a single resolution cannot be made unless a resolution that the motion shall be so made has first
been agreed to by the meeting without any vote being given against it.
(2) A resolution passed in accordance with a motion made in contravention of this section will be void, whether
or not the resolution being moved was objected to at the time.
APPOINTMENT IN PUBLIC LISTED COMPANY

15.03 Undertaking and letter by directors

(1) A person who is a director of a listed issuer must give to the Exchange not
later than 14 after his appointment, an undertaking in the form as may be
prescribed by the Exchange.
(2) A person who is appointed as an independent director must give to the
Exchange not later than 14 days after his appointment letter in the form as
may be prescribed by the Exchange.
APPOINTMENT - TERMS

PRIVATE COMPANY PUBLIC COMPANY

Fees Fees
• Board’s approval Approved at general meeting
• Recorded in the minutes of the directors meeting
• Notify shareholders within 14 days from date of approval
Role and duties, privileges and perks Role and duties, privileges and perks
Determined by Board as empowered by the constitution Determined by Board as empowered by the constitution

Retirement by rotation Retirement by rotation

• Depends on terms of appointment as set in letter of appointment • All directors retire at the first AGM
• Resolution to that effect can be passed in members meeting • In every subsequent year, one-third of the directors
shall retire
• A retiring director is eligible for re- election
APPOINTMENT – DIRECTORS SERVICE CONTRACT (PUBLIC COMPANY)
Directors service contracts (S231)
231. (1) a contract under which —
a. a director of the company undertakes personally to perform services, as a director or otherwise for the public company or for a subsidiary of the public
company; or
b. services that a director of the public company undertakes personally to perform as director or otherwise are made available by a third party to the public
company, or to a subsidiary of the public company.

Copy of contracts to be available for inspection

232. (1) Subject to section 233, a public company shall keep and maintain a copy of every director's service contract with the company or with its subsidiaries available
for inspection.
(2) All the copies of contracts shall be kept available for inspection at the registered office of the company.
(3) The copies of contracts shall be made available for inspection for at least one year from the date of termination or expiry of the contract.
(4) The company shall give notice to the Registrar—
(a) of the place at which the copies of the contracts are kept available for inspection; and
(b) of any change in that place.
unless the copies of the contracts have at all times been kept at the registered office of the company.

The company and every officer who contravene subsection (1), (2) or (3) commit an offence and shall, on conviction, be liable to a fine not exceeding one million
ringgit.
Right of member to inspect and request copy
233. (1) Every copy of the contract required to be kept under section 232 shall be made available for inspection by —
a. in the case of a public company having share capital, by members holding at least 5% of the total paid up capital; or
b. in the case of a public company not having share capital, by at least 10ten per centum of members.
(2) the members entitled to inspect may request to be provided with a copy of the contract (upon fee payment).
(3) The copy must be provided within 7 days from the date the request is received by the company.

Every officer who refuses a request for inspection under subsection (1) or contravenes subsection (2) commits an offence. Upon conviction, liable to a fine not
exceeding RM250,000.
The Court may, by order, compel an immediate inspection or, direct that the copy required be sent to the person requiring it.
APPOINTMENT – DIRECTORS SERVICE CONTRACT (PRIVATE COMPANY SOLE MEMBER)

Contract with sole member who is also a director

234. (1) This section applies where —

a. a limited company having only one member enters into a contract with the sole member;
b. the sole member is also a director of the company; and
c. the contract is not entered into in the ordinary course of the company's business.
(2) The company shall, unless the contract is in writing, ensure that the terms of the contract are duly recorded in the
minutes of the meeting of the directors that immediately after the making of the contract.
(4) The company and every officer who contravenes this section commit an offence and shall, on conviction, be liable to
a fine not exceeding one million ringgit.
 TYPES OF
DIRECTORS
TYPES OF DIRECTORS
TYPES OF DIRECTORS
Alternate director/  Appointed by a member of the board to act
and speak during periods of absence or
substitute director incapacity of the director
 No provision in the Companies Act 2016 
must rely on company constitution
 Constitution may provide that any director
may, with the approval of the board of
directors, appoint any person to be an
alternate or substitute director
 Entitle to receive notice of board meetings and
to attend and vote and exercise all powers of
the substantive director
 Shall automatically cease as alternate director
if the substantive/ principal director vacates
office
 Not required to hold qualification shares
Associate director/  He is not a director within the meaning of
special director section 122 of the Act
 Title for senior executives who are salaried
employees
 Purposes:
- provide training for top management with
the view to a board appointment in future
- to improve their status within the
company and to deal with customers or
suppliers
 Do not have the right to attend or vote at
any board meeting except by invitation
and with the consent of the board
Nominee directors  A person who has been designated to act
for another person
 A person who is accustomed, or is under
an obligation, whether formal or informal
to act in accordance with the instructions
or wishes of another person
Managing director  The Board may, from time to time, appoint one or
more of the board member to the office of
managing director for such period and on such
terms as the Board thinks fit and may revoke any
such appointment.
 Subject to the terms of any agreement entered,
may receive remuneration, such salary,
commission, or participation in profits, or partly in
one way and partly in another, as the Board may
determine.
 The Board may entrust to and confer upon a MD
any of the powers exercisable by the Board upon
such terms and conditions and with such
restrictions as the Board may think fit, this powers
may from time to time be revoked, withdrawn,
altered or varied.
 While being a MD, he is not subject to retirement by
rotation or be taken into account in determining the
rotation of retirement of directors, but his
appointment depends on being a director (stop
being MD if disqualified or cease being a director)
Appointment of MD must be provided in the
constitution
 MD to sign a contract of service
TYPES OF DIRECTORS
Independent  Independent of management
directors  Free from any business or other
relationship, which could interfere
with the exercise of independent
judgement or the ability to act in
the best interest of a listed
company
A director is deemed
 Not an executive director of the listed
independent company
 Not an officer of the listed company
 Not a major shareholder
 Not a relative of any executive director,
officer or major shareholder of the
listed company
 Not acting a nominee or representative
of any executive director or major
shareholder
 Not engaged as a professional adviser
by the listed company, and not a
partner, director or major shareholder
of a firm which provides the
professional advisory services
 Not engaged in any transaction with the
listed company and not a partner,
director or major shareholder of a firm
engaged in that transaction
Role of independent
directors
• Identify the right strategy that will improve
shareholders’ value
• Balance up board structure. Bursa requires at least 2
directors or 1/3 of board members be independent
directors
• Give independent view and judgement in the board
decision making process
• Act as a “watchdog”
• Act as chairman of committee meetings
Evaluate and monitor the decision-making process
•
• Provide an objective and positive contribution
Provide an assertive and influencing presence for the
•
company’s interest
Provide independent view and judgement relating to
•
conflicting issues
Circumstances where a • Holding more than 15% of the issued and paid up
nominee of a major capital
shareholder may apply to • If the major shareholder is not deemed to be a
Bursa Malaysia to be promoter of the listed corporation
considered as an • If the major shareholder is a statutory institution
independent director who is managing funds belonging to the public
• The major shareholder is an entity established as a
collective investment scheme, for e.g. unit trusts
Bursa Listing requirement 15.02 Composition of the board of directors
(1) A listed issuer must ensure that at least 2 directors or 1/3 of the board of
directors of a listed issuer, whichever is the higher, are independent
directors.
VACATION
DIRECTOR – VACATION OF OFFICE

Additional BURSA requirement

Retirement of directors 15.05 (3) The office of a director will become
vacant if the director
(c) is absent from more than 50% of the total
board of directors’ meetings held
during a financial year;
Resignation of directors
General Rule
208 (2) Subject to subsection 196(3) and section 209, a director may resign his office by giving a written notice to the
company at its registered office.
(3) A notice under subsection (2) shall be effective when it is delivered at the address of the registered office or at a later date
specified in the notice
Exceptions

196.(3) A director of a company cannot resign or

vacate his office if by his resignation or vacation from
office, the number of directors of the company is reduced
below the minimum number

any purported resignation or vacation of office in

contravention of this section is deemed to be ineffective
unless a person is appointed in his place.

(4) If a vacancy is created resulting from circumstances referred to in subsection (1), the Board shall have the
power, at any time, to appoint any person to be a director to fill such casual vacancy and the director so appointed
shall hold office-

(a) in the case of a public company, until the next annual general meeting; or

(b) in the case of a private company, in accordance with the terms of appointment.
Retirement of directors

Retirement by rotation (private company)

• Depends on terms of appointment as set in letter of appointment
• Resolution to that effect can be passed in members meeting

Retirement by rotation (public company)

• All directors retire at the first AGM
• In every subsequent year, one-third of the directors shall retire
• A retiring director is eligible for re- election
• The directors to retire in every year are the directors who have been longest in office since the directors' last election,
• If they became directors on the same day, the directors to retire is determined by lot, unless they otherwise agreed
among themselves
Removal of directors
206.
Private company

Public company

Notwithstanding anything in the

constitution or any agreement
between a public company and a
director, the company may by
ordinary resolution at a meeting
remove the director before the
expiration of the director's tenure of
office.
Removal of directors
Sole remaining director

209. (1) where a company has only 1 director or he

is the last remaining director, that director
cannot resign until that director has called a
meeting of members to receive the notice of
the resignation and to appoint one or more new
directors.
(3) In the event of the office of a sole director or
the last remaining director of the company
being vacated due to the circumstances referred
to in paragraph 208(1)(d), (e), (f) or (g), the
secretary, as soon as practicable, should call a
meeting of the next of kin, other personal
representatives or a meeting of members.

(5) Where the next of kin, personal representatives

or members fail to appoint a director within six
months of the death of the last director, the
Registrar may direct the company to be struck
off in accordance with Subdivision 1 of Division
4 of Part IV.

208(1)
(d) disqualified under S198 and 199
(e) Becomes unsound of mind
(f) dies
Last remaining (d), (e), (f), (g)
(g) Vacates according to constitution
director
DIRECTORS DUTIES
AND ETHICS
Director’s duty and ethics

Functions of Board

211. (1) The business and affairs of a company shall be managed by, or under the direction of the Board.
(2) The Board has all the powers necessary for managing and for directing and supervising the management of
the business and affairs of the company subject to any modification, exception or limitation contained in
this Act or in the constitution of the company.

Proceedings of Board

212. Subject to the constitution, the provisions set out in the Third Schedule governs the proceedings of the
Board. (will be discussed in meeting)

Duties and responsibilities of directors

213. (1) A director of a company shall at all times exercise his powers in accordance with this Act, for a proper purpose
and in good faith in the best interest of the company.

(2) A director of a company shall exercise reasonable care, skill and diligence with-
(a) the knowledge, skill and experience which may reasonably be expected of a director having the same
responsibilities; and
(b) any additional knowledge, skill and experience which the director in fact has.
Director’s duty and ethics
Director’s duty and ethics
Business judgment rule
214. (1)(a) makes the business judgment for a proper
purpose and in good faith;
(b) does not have a material personal interest in the
subject matter of the business judgment;
(c) is informed about the subject matter of the business
judgment to the extent the director reasonably believes to
be appropriate under the circumstances; and
(d) reasonably believes that the business judgment is in
the best interest of the company.
Responsibility for actions of delegatee
216 (2) Where the directors have delegated any power, the
directors are responsible for the exercise of the power by
the delegatee as if the power had been exercised by the
directors themselves.
Reliance on information provided by others
215. (1) A director in exercising his duties as a director may rely on
information, professional or expert advice, opinions, reports or statements
including financial statements and other financial data, prepared, presented or
made by-
(a) any officer of the company whom the director believes on reasonable
grounds to be reliable and competent on the matters concerned;
(b) as to matters involving skills or expertise, any other person retained by
the company in relation to matters that the director believes on reasonable
grounds to be within the person's professional or expert competence;
(c) another director in relation to matters within the director's authority; or
(d) any committee to the board of directors on which the director did not serve
in relation to matters within the committee's authority.
(2) The director's reliance made under subsection (1) is deemed to be made on
reasonable grounds if it was made-
(a) in good faith; and
(b) after making an independent assessment of the information or advice,
opinions, reports or statements, including financial statements and other
financial data, having regard to the director's knowledge of the company and
the complexity of the structure and operation of the company
Director’s duty and ethics
Responsibility of a nominee director
A nominee director is a director appointed by its nominator such as
major shareholders in expectation that they act to protect the
interests on their nominator.
217. (1) A director who was appointed by virtue of his
position as an employee of a company, or who was
appointed by or as a representative of a member, employer
or debenture holder, must act in the best interest of the
company and in the event of any conflict between his duty to
act in the best interest of the company and his duty to his
nominator, he shall not subordinate his duty to act in the best
interest of the company to his nominator.
Prohibition against improper use of property, position, etc.
218. (1) A director or officer of a company shall not, without
the consent or ratification of a general meeting-
(a) use the property of the company;
(b) use any information acquired by virtue of his position as a
director or officer of the company;
(c) use his position as such director or officer;
(d) use any opportunity of the company which he became
aware of, in the performance of his functions as the director
or officer of the company; or
(e) engage in business which is in competition with the
company,
to gain directly or indirectly, a benefit for himself or any other
person, or cause detriment to the company.
Director’s duty and ethics
SSM COMPANY DIRECTOR'S CODE OF ETHICS

B. PRINCIPLES
The principles on which this Code rely are those that concern transparency, integrity, accountability
and corporate social responsibilities.

C. OBJECTIVES
This Code of Ethics is formulated to enhance the standard of corporate governance and corporate
behavior with a view to achieving the following objectives:

1. To establish standards of ethical conduct for directors based on acceptable belief and values one
upholds.
2. To uphold the spirit of social responsibility and accountability in line with the legislations,
regulations and guidelines governing a company.

D. DEFINITION
In the context of this Code, a company director means any person occupying the position of director
of a corporation by whatever name called, and includes a person in accordance with whose
directions and instructions the directors of a corporation are accustomed to act, and an alternate or
substitute director. A director also includes both executive and non-executive director as well as
executive and non-executive chairman.
Director’s duty and ethics

1 Corporate Governance

1.1 Should have a clear understanding of the aims and objectives, capabilities and capacity of the company;
1.2 Should devote time and effort to attend meetings and to know what is required of the board and each of its directors, and to discharge those functions;
1.3 Should ensure at all times that the company is properly managed and effectively controlled;
1.4 Should stay abreast of the affairs of the company and be kept informed of the company's compliance with relevant legislations and contractual
requirements;
1.5 Should insist on being kept informed on all matters of importance to the company in order to be effective in corporate management;
1.6 Should limit his directorship of companies to a number in which he can best devote his time and effectiveness; each director is an own judge of his
abilities and how best to manage his time effectively in the company in which he holds directorship;
1.7 Should have access to the advice and services of the company secretary, who is responsible to the board to ensure proper procedures, rules and
regulations are complied with;
1.8 Should at all times exercise his powers for the purposes they were conferred, for the benefit and prosperity of the company;
1.9 Should disclose immediately all contractual interests whether directly or indirectly with the company;
1.10 Should neither divert to his own advantage any business opportunity that the company is pursuing, nor may he use confidential information obtained
by reason of his office for his own advantage or that of others;
1.11 Should at all times act with utmost good faith towards the company in any transaction and to act honestly and responsibly in the exercise of his powers
in discharging his duties; and
1.12 Should be willing to exercise independent judgment and, if necessary, openly oppose if the vital interest of the company is at stake.

2 Relationship with Shareholders, Employees, Creditors and Customers

2.1 Should be conscious of the interest of share holders, employees, creditors and customers of the company;
2.2 Should at all times promote professionalism and raise competency of management and employees; and
2.3 Should ensure adequate safety measures and provide proper protection to workers and employees at work places.
Director’s duty and ethics

3. Social Responsibilities and the Environment

3.1 Should ensure that necessary steps are taken in accordance with the law to properly wind up or strike off the
company register if the company has not commenced business or has ceased to carry on business and is not
likely to commence business in future or again to carry on business as the case may be;
3.2 Should adopt an objective and positive attitude and give the utmost cooperation for the common good when
dealing with governmental authorities or regulatory bodies;
3.3 Should ensure effective use of natural resources, and to improve quality of life by promoting corporate social
responsibilities;
3.4 Should be more proactive to the needs of the community and to assist in society related programme in line
with the aspirations of the concept of 'Caring Society' in Vision 2020; and
3.5 Should ensure that the activities and the operations of the company do not harm the interest and wellbeing
of the society at large and to assist in the fight against inflation
TO BE CONTINUED IN PART 2