CORPORATE GOVERNANCE RATING INITIATIVE IN MALAYSIA

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CORPORATE GOVERNANCE RATINGINITIATIVE IN MALAYSIA
A Brainstorming Session 24th May 2005 BURSA
MALAYSIA KUALA LUMPUR
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CORPORATE GOVERNANCE RATING

• Presentation Outline
• Corporate Governance
• Definition, Environment Today,
  Building-Blocks Value-Chain for Shareholders
• Corporate Governance Rating
• Definition, Vision and Mission
• Review of Selected CG Framework Worldwide
• The Proposed Collaboration Selection Criteria
  Committee Assessment Committee

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CG Environment Today

• CG Definition
• 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 into
  account the interests of other stakeholders.
• There are rewards for conformance, and vice versa
• In Malaysia, KLSE requirement on CG was enforced
  on 1st Jan 2001
• The local CG players are Regulators, Watchdog
  Groups Promoters, Public Listed Companies,
  Investors

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Corporate Governance involves all structures,
systems and processes that will lead to the
optimum performance of the corporation
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THE BUILDING-BLOCKS OF CORPORATE GOVERNANCE
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THE BUILDING-BLOCKS OF CORPORATE GOVERNANCE

• STRUCTURES
• The operational skeleton
• Board of Directors
• Board of Directors Committees
• Corporate Structure
• Organizational Structure
• Board of Subsidiaries
• SYSTEMS
• The management information system (MIS)
• Accounting
• Financial Control Reporting
• Auditing
• Risk Management
• Internal Control

• PROCESSES
• The operational procedures
• BOD Decision Making
• Mandate to BOD Committee
• Stakeholders Communication
• Remuneration Policy
• Nomination Policy
• Succession Planning
• Strategic Business Planning

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Enterprise MIS Reporting Supply Chain
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CORPORATE GOVERNANCE FRAMEWORK
ULTIMATE AIM Of CG BEST PRACTICES
SHAREHOLDER VALUE
PROFITABILITY
GOODWILL
STRUCTURES
SYSTEMS
PROCESSES
WORK DELIVERY or PERFORMANCE (AUTHORITY, JOB
RESPONSIBILITY, ETC.)
WORK CULTURE (HARDWORK, HONESTY, BEST EFFORTS,
TRANSPARENCY, ETC.)
VALUE SYSTEM (INTEGRITY, RESPONSIBILITY,
ACCOUNTABILITY, ETC.)
ETHICS (RELIGION, CULTURE, SOCIAL VALUES, ETC.)
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THE CORPORATE GOVERNANCE VALUE-CHAIN FOR
SHAREHOLDERS

• IMPROVEMENTS
• STRUCTURES
• SYSTEMS
• PROCESSES

EDUCATION TRAINING
AWARENESS MOTIVATING CHANGE
WORK PERFORMANCE
PEER PRESSURE MARKET PRESSURE

• ? PROFITABILITY
• ? PRODUCTIVITY
• ? EFFICIENCY
• ? COST

• ? TRUST
• ? CONFIDENCE
• ? RISK PERCEPTION

GOODWILL
COMPETITIVE ADVANTAGE
SHAREHOLDER VALUE
CAPITAL MARKET ADVANTAGE
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Corporate Governance Rating is an objective and
independent measure of a companys level of
Corporate Governance Practices
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CORPORATE GOVERNANCE RATING

• Mission
• Provide a measure of a companys Corporate
  Governance Practices for the benefit of
  shareholders other stakeholders
• Improve practical aspects of corporate governance
• Enhance the attractiveness of the Malaysian
  Capital Markets

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CORPORATE GOVERNANCE RATING

• Vision
• Build world-class companies
• Build world-class capital market

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CORPORATE GOVERNANCE RATING

• Current Situation
• Compliance Mentality -
• Ad-hoc application
• Form over substance attitude
• Box-ticking practice
• Haphazard standards actually practiced -
• Statement of Corporate Governance
• Statement of Internal Control
• Audit Committee Report
• Superficial Understanding

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CORPORATE GOVERNANCE RATING
Need
Compliance Issue
Business Strategy Issue

• To shift mindset

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CORPORATE GOVERNANCE RATING
Need
Compliance Issue
Business Strategy Issue

• To shift mindset
• To shift approach

Cost-Based Application
Competitive Advantage Tool
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CORPORATE GOVERNANCE RATING
Need
Compliance Issue
Business Strategy Issue

• To shift mindset
• To shift approach
• To shift implementation

Cost-Based Application
Competitive Advantage Tool
Vague Theoretical Concept

• Practical Tools
• Structures
• Systems
• Processes

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REGULATOR PERSPECTIVE
SHAREHOLDER VALUE
CAPITAL MARKET ADVANTAGES
COUNTRY PROFILE
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BETTER CORPORATE GOVERNANCE
LARGER MORE ACTIVE CAPITAL MARKET
REGULATORS PUBLIC PROFILE
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IMPROVED GOVERNANCE PRACTICES
LOWER VIOLATIONS
BETTER REGULATORY ENVIROMENT
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IMPROVED GOVERNANCE PRACTICES
BETTER REGULATORY ENVIRONMENT
MORE ROBUST CAPITAL MARKET
4.
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E.G. OF WORLDWIDE CG RATING REFERENCES

• Standard Poors
• McKinsey
• ICRA
• PriceWaterHouseCoopers
• Credit Lyonnais Securities (CLSA)
• Institutional Shareholders Services (ISS)
• Oxfam
• Governance Metrics International (GMI)
• Corporate Governance Authority (CGA)

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E.G. OF WORLDWIDE CG RATING REFERENCES

• DWS Investment and Deminor Rating
• Fortune
• CRISIL (India) Governance Value Creation Rating
• Thai Rating Information Services (TRIS)
• Pillsbury Winthrop
• OECD
• ASX Corporate Governance
• Horwath (Australia)
• Sarbane Oxley

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Sample CG Framework
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Sample CG Framework
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PROPOSED COLLABORATION

• Regulators
• Business Industry
• Professional Bodies
• Universities Academia

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PROPOSAL

• Selection Criteria Committee
• Developing CG Rating Framework
• Rating Methodology
• Scoring System
• Assessment Committee
• Panel of Assessors
• Judges

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Brainstorming Session
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• THANK YOU