Malaysian Code of Corporate Governance

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  • Created by: andreaong
  • Created on: 14-12-19 06:39
Stakeholder Theory
Claims that corporations should operate for the benefit of all who have a stake in the company
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Sarbanes Oxley Act Title I
Created the Public Company Accounting Oversight Board which has the power to review audits, amend existing audit standards & sanction firms for inadequate audits
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Sarbanes Oxley Act Title II
Auditor Independence: Limits the non-audit acts that an auditor can provide for his client, requires that the lead audit partner's clients be rotated every 5 years & requires a 1 year waiting period before accepting employment from a new client
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Two Causes of the East Asian Financial Crisis 1997
Failed corporate governance & inappropriate macroeconomic policies coupled together with inefficient management
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Two Causes of the East Asian Financial Crisis 1997
Pressure on countries from the International Monetary Fund to increase interest rates leading to the closure of banks & the 'Pangloss equilibrium' which led to a bubble in asset prices
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What did the Financial Crisis uncover
Poor protection for minority shareholders, lack of transparency & financial disclosure & various levels of cronyism embedded throughout corporations
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The weak corporate governance regulatory framework resulted in
Inefficient protection for minority shareholders from expropriation & inability to effectively manage agency conflicts against managers
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Finance Committee on Corporate Governance was created to
Identify weaknesses in corporate governance
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What did the FCCG recommend
Implementation of the MCCG to identify best practices for governance & establishment of the Minority Shareholder Watchdog Group to protect shareholders from abuses from insiders
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Problems with the MCCG 2000
Prescriptive approach, directors only had to tick a box to show compliance but no proof that practices were actually complied with
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Other regimes
Financial Sector Master Plan & Capital Market Master Plan
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Phase Two of Reforms
Mandatory reporting on state of compliance allowed the public to assess the standard of a compliance with MCCG by public listed companies
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MCCG 2007
Recommended a transparent procedure for the selection of board directors
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Phase Three of Reforms
MCCG 2012: Listed companies required to disclose their state of compliance with the MCCG in their annual reports even though compliance is voluntary
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Financial Sector Master Plan
Promoted dynamic, competitive marketplace by encouraging shareholder activism, regulatory control & priority sector financing
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Capital Market Master Plan
Encouraged companies to mandatorily disclose their state of compliance with the MCCG
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Problems with State involvement
Ownership of business equity by the State gives rise to a conflict of interest as the state is operating in the dual role of shareholders & governance regulator
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Lax monitoring & enforcement
Numerous scandals involving government-linked corporations gives rise to the question of where the burden of responsibility lies for the monitoring & enforcing of corporate governance
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MCCG & Bursa Malaysia Listing Rules
In 2001, it became compulsory for all listed companies to disclose their state of compliance with the MCCG in their annual reports even though compliance with the practices is voluntary
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MCCG & Stock Performance
82% of investors said corporate governance is as important as financial issues, most would be willing to pay a 22% premium for well-governed firms & stock price increased by 5% after implementation of MCCG
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Corporate Governance & Politicians
Strong evidence that political connections have a negative impact on corporate governance with politicians being found to be a major barrier to corporate governance reforms
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Politically-connected firms are...
Found to have weaker corporate governance than politically independent firms
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3 Key principles of good corporate governance
Board leadership & effectiveness, effective audit & risk management & integrity in corporate reporting & meaningful stakeholder relationships
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Intended Outcome
Gives companies the line of sight on what they will achieve through the application of the practices
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Practices
Actions, processes & procedures that will help companies to achieve the Intended Outcome
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How are Practices crafted?
Legal requirements are considered, Bursa Malaysia Listing Rules are considered, size & complexity of corporations is considered & developments in global corporate governance standards
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Step-Up Practices
Not mandatory but encourage companies to go a step further in strengthening their governance practices & procedures
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Guidance
Gives assistance to companies on how to apply the Practices
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Limitations of the MCCG
Only applies to Public Listed companies (meaning state-owned, SMEs & licensed intermediaries are exempt) & some practices only apply to Large companies
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What are Large companies?
Companies listed on the FTSE Bursa Malaysia Top Index 100 or with a market capitalisation of over RM2billion
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Other cards in this set

Card 2

Front

Created the Public Company Accounting Oversight Board which has the power to review audits, amend existing audit standards & sanction firms for inadequate audits

Back

Sarbanes Oxley Act Title I

Card 3

Front

Auditor Independence: Limits the non-audit acts that an auditor can provide for his client, requires that the lead audit partner's clients be rotated every 5 years & requires a 1 year waiting period before accepting employment from a new client

Back

Preview of the back of card 3

Card 4

Front

Failed corporate governance & inappropriate macroeconomic policies coupled together with inefficient management

Back

Preview of the back of card 4

Card 5

Front

Pressure on countries from the International Monetary Fund to increase interest rates leading to the closure of banks & the 'Pangloss equilibrium' which led to a bubble in asset prices

Back

Preview of the back of card 5
View more cards

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