Corporate Governance: An Overview

• Corporate governance is the cornerstone of the modern market-oriented economy.
• The agenda includes defining corporate governance, outlining its principles, and its practice in economics.
• Corporate governance promotes the effective use of scarce resources.
• Corporate governance promotes the trust of investors.
• Effective corporate governance links economic development and corporate performance positively.
• International funds flow to entities with internationally accepted corporate governance standards.
• Corruption in countries deters investors.
• Securities and company law protection alone is insufficient.
• Maintaining integrity and managing the risk of fraud and management misconduct are also important facets of Corporate Governance.
• Corporate governance defines the system directing and controlling business corporations.

Corporate Governance Definition

• It details the rights and responsibilities among participants, like the board, managers, and stakeholders.
• It outlines rules and procedures for decisions on corporate affairs.
• It provides a structure for setting objectives and monitoring performance, according to the OECD in April 1999.
• The High Level Finance Committee Report (1999) defined it as the process directing a company toward business prosperity and corporate accountability to realize long-term shareholder value, (Securities Commissions, Malaysia 2021).

Principles of Corporate Governance

• The Corporate Governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board's accountability to the company and the shareholders.
• Establishing a solid foundation for the corporate governance framework.
• Shareholders’ rights protection plus key ownership functions.
• Promoting the impartial and equal treatment of shareholders.
• Identifying the role of stakeholders in overall corporate governance.
• Ensuring disclosure and transparency from the company.
• Establishing responsibilities for the board of directors.

Corporate Governance in Practice

• Investors expect adherence to the "Code of Corporate Governance Practices”.
• The board assumes leadership and control of the corporation.
• The board directs and supervises the company affairs.
• The board makes decisions in the company’s best interest.
• Boards should have regular scheduled meetings
• There should be active participation from all directors
• Freedom to include items in board agendas is necessary
• Sufficient notice for meetings should be given
• There should be access to outside consultation, like a company secretary
• Complete minutes of board and committees should be recorded and accessible.
• Independent and non-executive directors should be present at board meetings to discuss possible conflicts of interest.
• Directors should abstain from voting if a conflict of interest exists.
• Insurance should cover any legal action against board members and directors.

Chairman and CEO

• Maintain day-to-day management with independence and segregation.
• Balance power at board level.
• Clearly separate the roles of Chairman and CEO
• Make sure the responsibilities for each role are written down

Chairman Responsibilities

• Provide leadership for the board of directors.
• Ensure the board works efficiently and fulfills its responsibilities.
• Ensure that strong practices and procedures of corporate governance are in place.
• Guarantee that all directors are well briefed on issues prior to board meetings.
• Ensure that information reaches the directors.
• Encourage full and active contribution to the board's affairs.
• Ensure clear communication between the board and its shareholders.
• Hold regular meetings with non-executive directors.
• Ensure constructive relationships between executive and non-executive directors.
• Ensure that the board has varied professional skills and experiences.
• Ensure that the board has a fair composition of executive and non-executive directors.
• Appoint high-caliber non-executive directors
• There should be formal, transparent appointments of all directors.
• Ensure succession plans are in place.
• Re-elect directors at regular intervals.

Director Rules

• An explanation is required is there is any resignation or removal of directors.
• Establish a specific term for all non-executive directors.
• All directors should retire and rotate at regular intervals.
• Form a nomination committee to make recommendations.
• Appoint directors and succession planning for directors, chairman, and CEO Ensuring directors know:
• Responsibilities of the director should be in writing
• Exercise their duties of care, skill, integrity, and diligence
• Operational understanding, business, and regulatory requirements
• Contribute sufficient time and resources

AGM Expectations

• Directors generally attend the Annual General Meeting.
• Attendance is to share with shareholders the directors' views.
• Non-executive directors participate actively in discussions.
• Non-executive directors bring independent judgments.
• They should be able to take the lead on conflicts of interest.
• Non-executive directors also serve on committees.
• Oversight of the corporate’s achievement on its goals
• Directors need accurate and appropriate information to make informed decisions.
• Send agendas and board papers in full and on time.
• Give clear guidance for providing complete and reliable information
• Directors must be allowed to contact senior management for more information.

Remuneration

• Remuneration for directors and senior management should be a transparent process.
• Compensation should be adequate but not excessive.
• Each director with a role should not decide in his/her own process.

Remuneration Committee

• It be formed mainly of non-executive directors.
• Remuneration Committee, can consult Chairman/CEO, if necessary
• Access must be given to advice that is from professionals.
• Compare remuneration with similar positions and companies using compensation marketing information
• Make suggestions on policy and structure.
• Determine specific remuneration packages of all executive directors and senior management.
• Approve performance-based compensation arrangements.
• Review and approve compensation arrangements for removal in terminations of office related to misconduct.

Accountability And Audit - Financial Reporting

• Management must be able to provide information and explanations so the board can make the correct assessments for all financials.
• The board must present a complete assessment of the corporate position and prospects in annual reports.
• In addition, price-sensitive reports must be in all financial disclosures, too

Accountability and Audit - Internal Control

• Maintain sound and effective internal controls to safeguard company assets.
• Regularly review the effectiveness of the internal control system, covering financial, operational, compliance, and risk management functions.
• The above should serve to prevent incidents of both fraud and general malpractice.

Audit Committee

• There should be a clear code of conduct and ethics set out in the terms of reference
• A clear and formal protocol with financial reporting and principles with external auditors
• Must follow all minutes of the audit committee to be kept
• Sufficient resources to be discharged with any of duties
• Independence from all external auditors
• Make recommendations for selecting auditors and removing them.
• Monitor the effectiveness of auditing, making sure that objectivity and independence are maintained.
• Be sure that the financial reports integrity and financial controls are in place.
• Clear directions to management as to matters requiring board approval before decision made

Delegation By The Board

• Publish a formal schedule of matters specifically reserved to the board for decision.
• Clear directions to the delegation of the management
• Oversee the management of the powers of the administration function
• Review the arrangement for segregation of duties between board and management regularly.
• The board should have committees, which have specific terms if reference that are relevant to this process.

Communication With Shareholders - Effective Communication

• Ensure that there is dialogue and make use of meetings to communicate with the shareholders on-going.
• Transparency in governance and business performances through proper disclosures.
• Encourage any involvement to be a part of process.
• Separate issue need to be addressed with a separate resolution.
• The chairman of the board and sub-committees need to available in meetings ready to answer questions.

Voting By Poll

• Shareholders need to be informed in procedure for voting by poll.
• Compliance for relevant rules and by laws needs to be in place.
• Corporate governance is a dynamic and evolving process without boundaries.

Explore corporate governance, its principles, and its practice in economics. It is the cornerstone of the modern market-oriented economy. Effective corporate governance links economic development and corporate performance positively.