Corporate governance report card

Corporate governance report card

Abdul Wahab Jaafar Sidek

ONE OF THE CORE PRODUCTS OF THE MINORITY SHAREHOLDER Watchdog Group (MSWG) is ascertaining the level of corporate governance among the public-listed companies (PLCs) of Bursa Malaysia. Towards this end, MSWG, in collaboration with the Nottingham University Business School, conducted a corporate governance survey covering the top-200 PLCs. The 2006 survey report was officially launched on Nov 20, 2006 by Deputy Finance Minister I Datuk Dr Ng Yen Yen. In this article, we will look at the main findings of the report.

On an overall basis, there has been general improvement over the year in companies’ compliance with local and international corporate governance principles and best practices. Table 1 shows that by and large, companies showed a moderately high level of compliance with the recommended corporate governance principles and best practices. This is indeed an encouraging development. There is, however, some considerable variation in the level of compliance, and hence, disclosure of corporate governance practices by the top-200 companies as can be deduced from Table 1 and Chart 1. A good majority of companies have corporate governance scores of between 45% and 60%, and an average corporate governance score of 53%, suggesting a moderately high level of compliance.

Nevertheless, a closer examination of Table 1 suggests that the code and best practices (as reflected by the Basic Compliance Score) were generally observed by the surveyed companies, and that for a number of companies, the level was approaching maximum compliance. However, the results of the International Best Practices Score imply that generally, Malaysian companies still lag in complying with the recommended international best practices that are not already enjoined by the code. This development could be attributed to the fact that companies are well aware of the code but are possibly not well exposed to these best practices. Perhaps, also at the current stage of development, companies generally feel that to comply with the code and best practices supercede complying with the recommended international best practices. (Further explanation is provided in the next two sections.)

Tables 2 and 3 reveal the top-10 leaders and the top-10 laggards respectively in terms of the corporate governance scores. Among the top-10 leaders, six are the same companies that were also ranked among the top-10 in the immediate preceding survey (the Corporate Governance Survey Report 2004, published in December 2005).

Two other companies that rank among the top-10 are those that had shown tremendous improvement from the preceding survey. These companies are Bumiputra-Commerce Holdings Bhd and Astro All Asia Networks Plc. The former is now an enlarged business entity as a result of the merger between CIMB Bhd and Bank Bumiputra Bhd. Astro is a young entity incorporated in 2003 in the United Kingdom and registered as a foreign company in Malaysia; therefore subject to greater regulatory burden.

There are two other companies worthy of special mention; Bursa Malaysia Bhd and IJM Plantations Bhd. Both have demonstrated exemplary disclosure (and presumably also practices), even though both were only recently listed. Nevertheless, one would expect that Bursa Malaysia would have to walk the talk, given its unique role as one of the principal regulators.

Among the top-10 companies, the performance of Public Bank Bhd seems outstanding yet again. The company has not only remained in the top-10 category but has also remained top-ranked in the current survey. As has been found in the preceding survey, the company’s disclosure of its corporate governance compliance and practices in its current annual report appears more updated, personalised and informative than others. In fact, it has been determined that the length of its corporate governance statement has increased from the previous statement by 1,812 words; suggesting greater explanation and/ or disclosure of policies and practices.

Among the top-10 laggards, five companies from the preceding survey remained ranked as laggards. They are Malaysian Pacific Industries Bhd, WTK Holdings Bhd, Hong Leong Industries Bhd, OYL Industries Bhd, and Oriental Holdings Bhd. The remaining top-five laggards are those being evaluated for the first time.

However, what appears to be more important is the gap in the corporate governance scores between the leaders and laggards. Relevant stakeholders need to examine this issue so that necessary action can be recommended and taken with the view of seeing an overall improvement in the level of compliance by Malaysian PLCs. Such improvement would arguably benefit the companies themselves, the investing community and also the nation as a whole.

The earlier mentioned variation in the level of compliance is also evident when industry sectors are compared (see Chart 2). This time around, it would seem that the construction industry is leading in terms of having better compliance levels (that is, above average) in all three categories of the Corporate Governance Score, the International Best Practices Score and the Basic Compliance Score. The next-best sectors appear to be the plantation and finance sectors respectively. The worst- performing sector in all three types of corporate governance scores was the technology sector.

The writer is the CEO of MSWG.

Copyright 2007

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