Long-serving independent directors still a concern for Malaysian PLCs, 12-year-term limit to be introduced

Long-serving independent directors still a concern for Malaysian PLCs, 12-year-term limit to be introduced
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KUALA LUMPUR (April 28): The Securities Commission Malaysia (SC)’s updated Malaysian Code on Corporate Governance (MCGG), released today, finds that the issue of long-serving independent directors in Malaysian public listed companies(PLCs) is still a concern.

As at March 31 this year, 434 independent directors have served their respective boards for more than 12 years; of these, 49 have served on the same board for over 20 years.

“To encourage periodic refresh of board composition, the MCCG recommends that the two-tier voting process be implemented for re-appointment of independent directors with tenures of more than nine years.

“The two-tier voting process which was first introduced in 2017, acts as a speed bump for boards and shareholders to carefully evaluate the decision to retain independent directors with tenures of more than 12 years and provide minority shareholders the opportunity to vote against such retention in the second-tier voting process,” the SC said.

Under a two-tier voting process, votes will be cast during the shareholders meeting, whereby only the large shareholders of the company will vote under Tier 1, while the rest of the shareholders will vote under Tier 2. Large shareholders here are defined as those who own no less than 33% of the voting shares in the company. The decision for any resolutions to be passed will be determined based on the votes of Tier 1 and a simple majority of Tier 2.

Following this MCCG review, Bursa Malaysia will introduce a 12-year tenure limit without further extension for independent directors in the Listing Requirements, with targeted issuance in the fourth quarter of 2021. Bursa will solicit feedback from listed issuers and industry before finalising the implementation timeline.

The MCCG 2021 takes effect today, and the first batch of companies to begin reporting on their adoption of these practices will be those with financial years ending Dec 31, 2021. The two-tier voting process will be applicable for resolutions tabled at general meetings held on or after Jan 2, 2022.

The 2021 update focused on, among others, board policies and practices on the selection and nomination criteria for directors, and further guidance for practices with low levels of adoption as reported in the SC’s annual Corporate Governance Monitor reports.

The MCCG 2021 also focuses on the role of the board and senior management in addressing sustainability risks and opportunities of the company. The last update of the MCCG was in 2017 and the SC has observed encouraging adoption of the Code by listed companies since then, with the majority of the best practices recording adoption levels of over 70%.

In a statement today, SC Chairman Datuk Syed Zaid Albar said there is a strong need for good corporate governance and board leadership, especially as companies navigate the prolonged post pandemic recovery period.

“The MCCG 2021 supports boards to build long-term resilience through the adoption and implementation of corporate governance policies and practices which will sustain listed companies in meeting challenges in a fast evolving business landscape,” he said.

The MCCG 2021 also addresses the urgent need for companies to manage Environmental, Social and Governance (ESG) risks and opportunities, with the introduction of new best practices that emphasise the need for collective action by boards and senior management.

“The global commitment and acceleration of efforts to transition towards a net zero economy has resulted in demand for greater action on the part of corporates. The SC’s review of sustainability statements by large listed companies found that some have begun to address climate-related risks but more can and needs to be done,” the SC said.

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Tan Choe Choe