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Fortifying governance: Malaysian Code on Corporate Governance 2021 updates

10 May 2021 PDF
Subject Business alert
Categories Business Insights
Jurisdictions Malaysia

The Securities Commission (SC) has issued updates to the Malaysian Code on Corporate Governance (MCCG), which include the introduction of new and enhanced best practices to fortify the corporate governance (CG) practices of public-listed companies (PLCs). The MCCG 2021 updates include:

  • Board policies and practices on the selection and nomination processes and criteria for directors
  • Further guidance on practices with low levels of adoption
  • The role of the board and senior management in addressing sustainability risks and opportunities of the company

While the MCCG is targeted at listed companies, non-listed entities can consider applying the MCCG practices to enhance their accountability, transparency and sustainability.

Whilst developing a core environmental, social and governance (ESG) strategy can be the pivot to build long-term value and sustainability, robust dynamics between the board and senior management can help expedite the re-modelling of strategies.
Dato’ Abdul Rauf Rashid
EY Asean Assurance Leader; Malaysia Managing Partner, Ernst & Young PLT

Governance, the guiding force towards sustainability

The new and enhanced best practices promulgated in the MCCG 2021 are timely to further guide companies in stepping up their governance strategies, priorities, compliance and processes.

MCCG 2021: practices and guidance highlights

The MCCG 2021 updates aim to promote new and enhanced best practices to fortify corporate governance practices and build business resilience and sustainability. Some highlights of the updates include:

New enhancements and practices, MCCG 2021
Improving board policies and practices
  • Selection, nomination and appointment of directors:
    • Chairman of the board is not a member of the Audit Committee, Nomination Committee or Remuneration Committee.
    • The board comprises at least 30% women directors - applies to all listed companies.
    • Companies to seek shareholders’ approval using the two-tier voting approach to retain independent directors with tenures of more than nine (9) years.
    • A 12-year tenure limit for independent directors without further extension will be introduced in the listing requirements (targeted issuance in Q4 2021).
  • Improve effectiveness and functions of the Audit Committee:
    • In assessing the suitability, objectivity and independence of the external audit firm, the Audit Committee should consider the information presented in the Annual Transparency Report of the audit firm.

Note: For more details, refer to Take 5 - Fortifying governance: MCCG 2021
Strengthening oversight of sustainability
  •  Five (5) best practices:
    • Board and senior management take responsibility for the governance of sustainability in the company.
    • Board ensures company’s sustainability strategies, priorities, targets and performance are communicated to stakeholders.
    • Board stays abreast with sustainability issues relevant to the company and its business.
    • Performance evaluations of the board and senior management include reviews of their performance in addressing the company’s material sustainability risks and opportunities.
    • Board identifies a designated person within management to provide dedicated focus to manage sustainability strategically.
Promoting meaningful engagement between company and stakeholders
  • Introduction of new practices on the conduct of general meetings, including e-AGMs:
    • Meaningful engagement between the board, senior management and shareholders, including matters relating to company’s financial and non-financial performance
    • Shareholders should be given the opportunity to ask questions during general meetings and all questions should receive meaningful responses.
    • The board must ensure that the conduct of virtual meetings support meaningful engagement.
    • Minutes of general meetings should be circulated to shareholders no later than 30 business days after the meetings.
Improving adoption of best practices and quality of CG Report disclosures
  • Strengthen guidance on disclosures of gender diversity policies and targets, and communication on board evaluation outcomes:
    • In improving diversity, appropriate measures and numerical targets need to be supported.
    • For large companies, the board should engage independent experts to conduct board evaluations at least every three years.
    • Board evaluations should include forward-looking considerations, such as mapping current board’s competencies against those required to drive the company’s future strategies.
    • Sparse and/or vague disclosures on the evaluation methodology and outcomes should be avoided. 

Operational timeline for MCCG 2021 application

The timeline for the operational progression and associated regulatory requirements of the MCCG are as follows: 

Five ways boards can help improve resilience

With the emergence of new and complex risks, boards need to find new ways of thinking about risk and transformation. Disruptions from the COVID-19 pandemic and climate change require robust strategies and actions across three horizons: now, next and beyond. Under this challenging risk environment, C-suites can consider five areas to strengthen organizational resilience:

Amid the pandemic, cybersecurity risk is intensifying, particularly with widespread remote working and increased online interactions. In this environment, remaining cyber-resilient and building stakeholder trust in the company’s data security and privacy practices are strategic imperatives. Public disclosures can help build trust by providing transparency and assurance around how boards are fulfilling their risk oversight responsibilities.
Susanna Lim
Partner, Business Consulting, Ernst & Young Advisory Services Sdn Bhd

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