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Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking account the interests of other stakeholders The Malaysian Code on Corporate Governance (Code), was first issued in March 2000, and then was later revised in 2007.
The Code essentially aims to set out principles and best practices on structures and processes that companies may use in their operations towards achieving the optimal governance framework. These structures and processes exist at a microlevel which includes issues such as the composition of the board, procedures for recruiting new directors, remuneration of directors, the use of board committees, their mandates and their activities. COMPLIANCE Listing Requirements of Bursa Malaysia requires all listed companies to state in their annual reports: • How they have applied the principles set out in Part 1; The extent to which they have complied with the best practices set out in Part 2; • Identify and give reasons for areas of non-compliance; and • Where applicable, state the alternative practice(s) adopted. The code also states that the boards are not required to comment on every item of the revised Code which they have complied with, but to disclose each area of non-compliance. Sanctions for non-disclosure Where a company fails to disclose the matters in its annual report, set out in para 4. 1 of the code, Bursa Malaysia can take action against the company or its directors as set out in the Listing Requirements of Bursa Malaysia.
SELECTED COMPANIES For this Assignment we were asked by our lecture to analyze the annual reports of two companies listed in the main board of bursa Malaysia and compare how they apply corporate governance. The two companies I selected for this assignment are; 1- Malayan Banking Berhad (Maybank) 2- Public Bank Berhad 1- Malayan Banking Berhad (Maybank) was incorporated on 31 May 1960 and commenced operations on 12 September 1960. On 17 February 1962, the bank was listed on the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia). Today, it is the largest financial services group in Malaysia.
Its extensive products and services include commercial banking, investment banking, Islamic banking, offshore banking, leasing and hire purchase, insurance, factoring, trustee services, asset management, stock broking, nominee services, venture capital and Internet banking. The Maybank Group has an extensive global network of 1,750 branches in 14 countries namely Malaysia, Singapore, Philippines, Brunei Darussalam, Indonesia, Vietnam, Cambodia, Papua New Guinea, Hong Kong SAR, People’s Republic of China, Bahrain, Uzbekistan, Pakistan, Great Britain and the United States of America. – Public Bank Berhad was Established in 1966 by its Founder and Chairman, Tan Sri Dato’ Sri Dr. Teh Hong Piow, Public Bank is a leading provider of financial services in Malaysia with banking operations in Hong Kong and China, Cambodia, Vietnam, Laos and Sri Lanka. In Malaysia, Public Bank is one of the most efficient banks as reflected by its low cost to income ratio. The Public Bank Group is very focused on its core businesses of providing a wide range of banking and financial services including retail commercial banking, corporate banking, investment banking, stock broking, funds management, wealth management services and Islamic banking.
The board: Maybank’s Board of directors embodies not only the necessary experience drawn from the relevant industry and the regulatory environment in which the Bank operates, but also possesses the appropriate business, financial and risk management skills.
The Board considers objectivity and integrity, as well as the relevant skills, knowledge, experience, mindset and ability, necessary to assist the Board in discharging its roles and responsibilities, as the pre-requisites for each appointment of a new director on the Board of Maybank. The directors’ relevant industry background ensures that they have the understanding of the fiduciary duties and responsibilities of the board of directors and the ability to better appreciate the industry within which Maybank operates, as well as its current and future competitive environment.
Board balance: Maybanks, board of directors currently has twelve (12) members, comprising one (1) executive director and eleven (11) non-executive directors, of whom seven (7) are independent. The current composition of the Board is in compliance with Paragraph 15. 02 of the Listing Requirements as more than half of its members are independent directors. Supply of information: The Board has full and unrestricted access to all information pertaining to the Group’s businesses and affairs to enable it to discharge its duties effectively.
Directors also have full and unrestricted access to the advice and services of the senior management and the Company Secretary of the Group. In addition to formal Board meetings, the Chairman maintains regular contact with the President & CEO to discuss on specific matters, and the latter assisted by the Company Secretary ensures that frequent and timely communication between the senior management and the Board is maintained at all times as appropriate.
Directors are also regularly updated and apprised of any new regulations and guidelines, as well as any amendments thereto issued by Bank Negara Malaysia, Bursa Securities, Securities Commission, Companies Commission of Malaysia and other relevant regulatory authorities including recommendations on corporate law reform in Malaysia as well as relevant foreign jurisdictions, particularly the effects of such new or amended regulations and guidelines on directors specifically, and the Bank and the Group generally.
Appointments to the board: There is a formal and transparent procedure for the appointment of new directors to the Board, the primary responsibility of which has been delegated to the Nomination Committee. The Policy on the Nomination Process for the Appointment of Chairman, Director and CEO of Licensed Institutions in the Group (“Policy on Nomination Process”) sets out a clear and transparent nomination process on the same. The nomination process involves the following five (5) stages:- * Identification of candidates * Evaluation of suitability of candidates * Meeting up with candidates * Final deliberation by Nomination Committee Recommendation to the Board Re-election: All directors of the Bank, including the President & CEO, are subject to re-election by the shareholders at their first opportunity after their appointment, and are subject to re-election at least once every three (3) years, in accordance with the Bank’s Articles of Association Principle responsibilities of the board: The roles and responsibilities of the Chairman and the President and CEO are clearly separated, defined and documented for approval by the Board. This distinction allows for a better understanding and distribution of jurisdictional responsibilities and accountabilities.
The clear hierarchical structure with its focused approach and attendant authority limits also facilitates efficiency and expedites informed decision-making. Directors training: For the period under review, the Board members have complied with the aforesaid internal policy by attending various training programmes and workshops on issues affecting the Group which were organised internally as well as in collaboration with external training providers, which included in particular the Directors’ Retreat jointly organised with International Centre of Leadership
Board Committees: The Board delegates certain of its governance responsibilities to the following Board Committees, which operate within clearly defined terms of references primarily to assist the Board in the execution of its duties and responsibilities. Although the Board has granted such discretionary authority to these Board Committees to deliberate and decide on certain operational matters, the ultimate responsibility for final decision on all matters lies with the entire Board.
Director’s remuneration: Directors’ remuneration is generally determined at levels which would continue to attract and retain directors of such calibre to provide the necessary skills and experiences required for the effective management and operations of the Group For executive directors, the component parts of remuneration are structured so as to link rewards to corporate and individual performance. A significant ortion of the executive directors’ compensation package has been made variable in nature to be determined based on performance during the year against the individual Key Performance Indicators which had been set in alignment with the corporate objectives and scorecard, and had been approved by the Board. For non-executive directors, the level of remuneration generally reflects the experience and level of responsibilities undertaken by these directors.
In relation to the Bank’s Employee Share Options Scheme (“ESOS”), allocations to directors are based on considerations such as length of service on the Board. The determination of remuneration packages for non-executive directors, including the non-executive Chairman, is a matter for the Board as a whole following the relevant recommendation made by the Remuneration and Establishment Committee. The directors concerned are required to abstain from deliberations and voting on decisions in respect of their individual remuneration, which the directors have duly complied with.
Disclosure: The Company’s annual report contains details of the remuneration of each director. Remuneration committee: The Remuneration Committee is also responsible for providing a formal and transparent procedure for developing a remuneration policy for directors, President ; CEO and key senior management officers and ensuring that the compensation package is competitive and consistent with the Bank’s culture, objectives and strategy.
The composition of the Remuneration Committee comprises non-executive directors, the Chairman and the majority of whom are independent. The Remuneration Committee meets at least once in every quarter with additional meetings convened to attend to urgent matters that require its deliberation. ACCOUNTABILITY AND AUDIT Financial reporting: The Board has presented to the shareholders and the public at large, a clear, balanced and meaningful evaluation of the Group’s financial positions, performance and prospects.
In order to meet the fiduciary responsibility expected of the Board, the Board with the assistance of the Audit Committee oversee the financial reporting process and the quality of the Group’s financial statements to ensure that the reports present a true and fair view of the Group performance. The Board also ensures that the financial treatment of the consolidated accounts under the Group is based on the more stringent requirements and that the financial statements of Maybank are in compliance with the Malaysian Accounting Standards Board’s (MASB) requirements, which are in accordance with the International Accounting Standards (IAS).
Internal control: The Board acknowledges its overall responsibility for maintaining sound internal control systems to safeguard the shareholders’ interest and the Group’s assets. It is of the view that the internal control framework is designed to manage the Group’s risks within an acceptable risk profile, rather than eliminate the risk of failure to achieve the policies, goals and objectives of the Group. The key processes that the Directors have established in reviewing the adequacy and integrity of the system of internal controls include the following:- * Risk management framework : The Board has established an organisation structure with clearly defined lines of responsibility, limits of authority and accountability * Board has also delegated the responsibility of reviewing the effectiveness of risk management to the Risk Management Committee. * Risk management principles, policies, procedures and practices are updated regularly to ensure relevance and compliance with laws and regulations and are made available to all employees. * A written Management Control Policy (MCP) and Internal Control Policy (ICP) from Management are in place. Establishment of the three (3) lines of Defence concept – risk taking units, risk control units and internal audit. * Internal Audit Function: * The Internal Audit function includes undertaking regular reviews of the Group’s operations and their systems of internal control by performing regular reviews of the business processes to examine and evaluate the adequacy and efficiency of financial and operating controls and highlights significant risks and non compliance impacting the Group. The Audit Committee of the Board (ACB) regularly reviews the actions taken on internal control issues identified in reports prepared by Internal Audit, the external auditors, regulatory authorities, and further evaluates the effectiveness and adequacy of the Group’s internal control system. The ACB has active oversight on the internal audit’s independence, scope of work and resources. It also reviews the Internal Audit function, particularly the annual audit plan scope and frequency of the internal audit activities. * Other key elements of internal control: An annual business plan and budget is submitted to the Board for approval. * The Board has also set up several Board Committees to assist the Board in performing its oversight functions. * Recruitment and promotion policies/guidelines within the Group are established to ensure appropriate persons of calibre are selected to fill positions available * A clearly defined framework with appropriate empowerment and authority limits has been approved by the Board for acquisitions and disposals of assets, awarding tenders, writing-off of operational and credit items, donations, as well as approving general and operational expenses. There are policies and procedures in place to ensure compliance with internal control, the prescribed laws and regulations. Relationship with auditors: As per the industry practice, the Group Internal Audit regularly audits the internal control practices and reports significant findings to the Audit Committee with the recommended corrective actions. Thereafter, the Management is held responsible for ensuring that all these corrective actions on reported weaknesses are undertaken within an appropriate time frame.
The Minutes of the Audit Committee are subsequently tabled to the Board for notation and served as reference especially if there were pertinent issues that the Committee wish to highlight to the Board. The Audit Committee and the Board maintain great emphasis on the objectivity and independence of the Bank’s Auditors, namely Messrs. Ernst & Young, in providing the relevant and transparent reports to the shareholders.
As a measure of ensuring full disclosure of matters, the Bank’s Auditors are regularly invited to attend the Audit Committee Meeting as well as the AGM, apart from the twice yearly discussions with the Audit Committee without the presence of the Management The audit committee: Maybanks Audit Committee consists of three (3) Independent Non-Executive Directors and two (2) Non-Independent Non-Executive Directors. One of the members (Spencer Lee Tien Chye) is a member of MICPA, an association of Accountants. This meets the requirement of Section 15. 9(1) of the Bursa Securities Listing Requirements which requires at least one qualified accountant as a member of the Audit Committee. Duties and responsibilities of the audit committee: The primary duties and responsibilities of the ACB are reviewing Internal Audit function, external auditors, financial reporting, related party transactions, annual reporting and investigation SHAREHOLDERS Relationship between board and shareholders: Shareholders in Malaysia and internationally, were well informed of the development and were appraised with the relevant information in a timely and comprehensive manner.
IR plays an important role in improving disclosure and transparency by providing effective and open channels of communications with its stakeholders in order to enhance Maybank’s corporate governance standards. Maybank continues to have a strong following among local and international investment community with 27 research houses actively maintaining coverage on Maybank, in addition to numerous institutional buy-side analysts and fund managers
Apart from the regulatory public statements released to the exchange, the Group conducted briefing sessions and conference calls for investment analysts, fund managers and various stakeholders As a commitment towards achieving a high level of communication and transparency with its shareholders and the investment community, management personnel responsible for IR activities met regularly with equity research analysts, fund managers, institutional shareholders and investors on a one-on-one basis as well as via teleconferences.
The AGM: During the Annual General Meeting in September 2008 and the Extraordinary General Meeting in March 2009, held in conjunction with the rights issue, shareholders, including retail investors, were provided with details of the Group’s long term strategy, regional expansion plans and its capital raising exercise. APPLICATION OF CORPORATE GOVERNANCE (Detail review) PUBLIC BANK BERHAD DIRECTORS The board: The Independent Non-Executive Directors do not engage in the day-to-day management of the Company and do not participate in any business dealings and are not involved in any other relationship with the Company.
This ensures that the Independent Non-Executive Directors remain free of conflict of interest situations and facilitate them to carry out their roles and responsibilities as Independent Directors effectively. The Members of the Board are persons of high calibre and integrity, and they fulfil the standards for “fit and proper” criteria. Board balance: The Board of Directors consists of 9 Members, of whom 2 are Executive Directors and 7 are Non-Executive Directors. of the Non-Executive Directors fulfil the criteria of independence as defined in the Bursa Malaysia Main Market Listing Requirements and the BNM Guidelines on Corporate Governance for Licensed Institutions (Revised BNM/GP1). The size of the Board is optimum for the complexity and scale of operations of the Bank. The significant proportion of two-thirds Independent Non-Executive Directors provides for effective check and balance in the functioning of the Board.
Supply of information: Minutes of each Board meeting are circulated to all Directors for their perusal prior to confirmation of the minutes to be done at the commencement of the following Board meeting. The Board has direct access to the Senior Management and has full and immediate access to information relating to the Bank’s business and affairs in the discharge of their duties. The Directors may require to be furnished with additional information or clarification, particularly in respect of complex and technical issues tabled to the Board.
Appointments to the board: The nomination committee evaluate the person’s ability to discharge such responsibilities/functions as expected from an independent non-executive director, and whether a director is independent as defined in the guidelines issued by BNM and in the bursa malaysia main market listing requirements. The nomination committee will recommend the proposed appointment of directors to the board for approval that an application be submitted to BNM.
Re-election: The re-appointment and re-election of Directors at the annual general meeting of Public Bank is subject to the prior assessment by the Nomination Committee the appointment of a new Independent. In Public bank berhad a Director can serve a term of 3 years. Principle responsibilities of the board: The Board is responsible for formulating and reviewing the Bank’s strategic plans and key policies, and to chart the course of the Bank’s business operations while providing effective oversight of the Management’s performance as well as the risk anagement procedures and key controls. The Board has established clear separation of the duties and responsibilities of the Non-Executive Chairman and the Independent Non-Executive Co-Chairman from the duties and responsibilities of the Managing Director/Chief Executive Officer. The difference in the roles of Non-Executive Chairman and the Independent Non-Executive Co-Chairman from the role of Managing Director/Chief Executive Officer provides for clear segregation of responsibility and accountability, and a balance of power and authority in the
Directors training: The Members of the Public Bank Board have continued to attend seminars and briefings during the financial year in order to enhance their skills and knowledges, and to keep abreast with changing commercial risks in line with market and economic developments. The Directors have also attended various training under the BNM’s Financial Institutions Directors Education (FIDE) programme.
The Directors also keep up-todate with market developments and related issues through monthly Board luncheon discussion meetings with the Chief Operating Officers and other Senior Management Officers, and through the Bank’s management seminars. Board Committees: To assist the Board in discharging its duties, the Board has established several Board CommitteesThe Board Committees in Public Bank are as follows: • Board Executive Committee • Audit Committee • Nomination Committee • Remuneration Committee • Risk Management Committee
Director’s remuneration: The Remuneration Committee and the Board ensure that the Bank’s remuneration policy remains supportive of the Bank’s corporate objectives and is aligned with the interest of shareholders, and further that the remuneration packages of Directors, CEO and key Senior Management Officers are sufficiently attractive to draw in and to retain persons of high calibre. The Board as a whole determines the remuneration of Non- Executive Directors, and each individual Director abstains from the Board decision on his own remuneration .
The Directors are paid annual fees, and attendance allowance of RM1,000 each for each Board meeting that they attend. Remuneration committee: The Remuneration Committee is made up entirely of Independent Non-Executive Directors; all the 6 Independent Non-Executive Directors are Members of the Remuneration Committee Meetings of the Remuneration Committee are held as and when necessary, and at least once a year. The Members Registered full attendance at all meetings held by the Remuneration Committee in 2009. ACCOUNTABILITY AND AUDIT
Financial reporting: The Board is committed to provide a balanced, clear and comprehensible assessment of the financial performance and prospects of Public Bank and Public Bank Group in all the disclosures made to the stakeholders and the regulatory authorities. Timely release of announcements on quarterly financial statements reflects the Board’s commitment to provide transparent and up-to-date disclosures of the performance of Public Bank and Public Bank Group. The Board, assisted by the Audit Committee, oversees the financial reporting process and the quality of the financial reporting of Public Bank Group.
The Audit Committee reviews and monitors the integrity of Public Bank’s and the Group’s annual and interim financial statements. It also reviews the appropriateness of the Bank’s and the Group’s accounting policies and the changes to these policies as well as ensures these financial statements comply with the accounting and regulatory requirements. Internal control: The management assists the Board in the implementation of the Board’s policies and procedures on risk and control by identifying and assessing the risks faced, and in the design, operation and monitoring of suitable internal controls to mitigate and control these risks. The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls include the following: * The Board Executive Committee is established by the Board to assist the Board in ensuring the effectiveness of Public Bank’s (“the Bank”) daily operations * The Internal Audit Divisions of the Bank and its major subsidiaries check for compliance with policies and procedures and the effectiveness of the internal control systems and highlight significant findings in respect of any non-compliance. The Audit Committees of the Bank and its major subsidiaries review internal control issues identified by the respective Internal Audit Division, the external auditors, regulatory authorities and management, and evaluate the adequacy and effectiveness of the risk management and internal control systems. * The Risk Management Committee was established by the Board to assist the Board to oversee the overall management of principal areas of risk of the Group. * Operational committees have also been established with appropriate empowerment to ensure effective management and supervision of the Group’s core areas of business operations Annual business plans are prepared by the Bank’s business units and all major operating subsidiaries and are reviewed and approved by their respective Boards. * There are proper guidelines within the Group for hiring and termination of staff, formal training programmes for staff, annual or semi-annual performance appraisals and other relevant procedures in place to ensure that staff are competent and adequately trained in carrying out their duties and responsibilities. * The Boards of the Bank and its major subsidiaries receive and review reports from management on a regular basis There are policy guidelines and authority limits imposed on executive directors and management within the Group in respect of the day-to-day banking and financing operations, extension of credits, investments, acquisitions and disposals of assets. * Policies and procedures to ensure compliance with internal controls and the relevant laws and regulations are set out in operations manuals, guidelines and directives issued by the Bank and its subsidiaries in the Group which are updated from time to time.
Relationship with auditors: It is the policy of the Audit Committee to meet with the external auditors at least twice a year to discuss their audit plan, audit findings and Public Bank’s financial statements. These meetings are held without the presence of the Executive Directors and the Management. The Audit Committee also meets with the external auditors whenever it deems necessary.
In addition, the external auditors are invited to attend the annual general meeting of the Bank and are available to answer shareholders’ questions on the conduct of the statutory audit and the preparation and content of their audit report. The audit committee: In addition to the duties and responsibilities set out under its terms of reference, the Audit Committee assists the Board by providing an objective non-executive review of the effectiveness and efficiency of the internal control, risk management and governance processes of Public Bank and Public Bank Group.
Duties and responsibilities of the audit committee: The responsibilities and duties of the Committee are reviewing and taking actions on * Risk Management * Internal Audit * External Audit * Audit Reports * Financial Reporting * Related Party Transactions * Other Matters SHAREHOLDERS Relationship between board and shareholders: The Public Bank Group has a strong following amongst domestic and international institutional investors, fund managers and equity research analysts.
A direct channel to them is in the investor relations function of the Group which plays a pivotal role in the communications with shareholders, investors and the investment community broadly, both in Malaysia and internationally. The AGM: During the Annual General Meeting shareholders, including retail investors, were provided with details of the Group’s long term strategy, regional expansion plans and its capital raising exercise and investors are encourage to participate in the business. CONCLUSION
After analysing the annuals reports of both Maybank and Public bank I can conclude that these two companies are in compliance with the Malaysian Code on Corporate Governance (Code), Both the companies have applied the principles set out in part 1 of the Malaysian Code on Corporate Governance (Code), They have to their best complied with the best practices set out in part 2 of Malaysian Code on Corporate Governance (Code) References: * Malaysian Code on Corporate Governance (Code), * http://www. pbebank. com * http://www. maybank2u. com. my