MSWG Weekly Newsletter 04 May 2018 (English)

04 May 2018

MESSAGE FROM THE CEO

Getting a new director on board

When speaking about independent directors, often two informal categories come to mind - independent directors (as the job title suggests) and the truly ‘independent’ independent directors.

This cynicism stems from the fact that majority shareholders are entitled to elect independent directors (except where companies adopt two-tier voting as advocated by the Malaysian Code of Corporate Governance (MCCG) for independent directors who have served beyond 12 years and wish to continue as independent directors).

Independent directors are typically sourced from three sources, namely (i) existing board members; (ii) within the management; and (iii) among the company’s major shareholders. Obviously, this begs the question of ‘how independent’ these independent directors can really be, thus sparking a fair bit of cynicism.

The MCCG now advocates the casting of a wider net when nominating independent directors and goes on to state that reasons must be given if a board chooses not to cast a wider net.

Identifying independent directors

It is well and good to rely on the abovementioned three traditional sources in the quest to identify potential candidates, but they should no longer be the sole sources when scouting for independent directors.

As a Practice, the MCCG now states that the board must utilise independent sources to identify suitable qualified candidates.  Moreover, it advocates boards to rely on a variety of approaches and sources in their search for the most suitable candidates.

In this regard, the MCCG goes on to provide three (non exhaustive) sources:

• A directors’ registry;
• Open advertisements; and
• Use of independent search firms

(The above is not an exhaustive list given some boards are known to have even leveraged LinkedIn to source for candidates).              

In a further effort to preserve the boards’ honesty, the MCCG further states that listed companies should disclose in their annual reports how candidates for non-executive director positions were sourced, including whether such candidates were recommended by the existing board members, management or major shareholders.

And if the selection of the candidates was solely based on the recommendations of existing board members, the management or major shareholders, the Nominating Committee should explain why other sources were not utilised.

Nominating Committees are thus expected to cast a wider net apart from the traditional sources comprising existing board members, the management and major shareholders. And if the Nominating Committee does not cast a wider net, it should reason out – in the annual report – why the net was not cast wider.

There are a few directors’ registry around town to begin with.  What pops up in mind are the 30% Club which boasts a pool of women directors with calibre and the Institute of Corporate Directors of Malaysia (ICDM).

Perhaps, the time is ripe for companies to advertise for directors just like how they advertise for other management and staff positions -  after all, being a director is itself a professional job.

And finally, the MCCG alludes to the use of independent search firms or more popularly known as ‘head hunters’ - if discretion is the order of the day -  in sourcing for new independent directors.

After all, an ‘independent’ independent director will be of much comfort to minority shareholders.

Regards,

Devanesan

MSWG’S QUICK TAKE ON-ONGOING CORPORATE DEVELOPMENTS

LIST OF CHINA BASED COMPANIES IN FINANCIAL IRREGULARITIES OR FINANCIAL DISTRESS

Note:

(1)   In the event that Maxwell International Holdings Berhad is unable to submit the outstanding annual report, including the annual audited financial statements for financial year ended 31 December 2017 on or before 8 May 2018, the trading of the company's securities will be suspended with effect from 9.00 am, Thursday, 10 May 2018 until further notice.

[Source: Announcements on Bursa Malaysia]

MSWG’S COMMENTS:

Lya Rahman, General Manager, [email protected]
Rebecca Yap, Head, Corporate Monitoring, [email protected]
Quah Ban Aik, Head, Corporate Monitoring, [email protected]
Norhisam Sidek, Manager, Corporate Monitoring, [email protected]
Wong Kin Wing, Manager, Corporate Monitoring, [email protected]
Hoo Ley Beng, Manager, Corporate Monitoring, [email protected]

Elaine Choo, Manager, Corporate Monitoring, [email protected]
Lee Chee Meng, Manager, Corporate Monitoring, [email protected] 

Abdul Halim Alias, Manager, Corporate Monitoring, [email protected]

Mustaqim Yusof, Analyst, Corporate Services, [email protected]

Muhammad Faris bin Mohamed Yusof, Analyst, Corporate Monitoring [email protected]

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