Chua Siew Chuan,FCIS

President

The Malaysian Institute of Chartered Secretaries and Administrators

9 Years’ Tenure for

Independent Directors Implementation & Challenges

Malaysian Corporate Governance Journey

Released by Securities Commission Malaysia

2000

2007

2012

Malaysian Code on Corporate Governance (“the Code”)

Revised Malaysian Code on Corporate Governance (“the 2007 Code”)

Malaysian Code on Corporate Governance 2012 (“MCCG 2012”)

means a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgement or the ability to act in the best interests of an applicant or a listed issuer.

Independent Directors

definition

Para 1.01

Main LR

at least 2 or 1/3 of board of directors must be independent directors

Para 15.02(1) Main LR

Independent Directors

prescribed number

Minimum 3

Para 15.09 Main

LR

Composition of Board Committees

Audit Committee

all non-executives, majority INEDs

No minimum

Para 15.08A Main

LR

Nominating Committee

all non-executives, majority INEDs

Recommendation 3.2 The tenure of an independent director should not exceed a cumulative term of nine (9) years. Upon completion of the nine years, an independent directors may continue to serve on the board subject to the director’s re-designation as a non-independent directors

MCCG 2012

Recommendation 3.3 the board must justify and seek shareholders’ approval in the event it retains as an independent directors, a person who has served in the capacity for more than 9 years

MCCG 2012

Long tenure can impair independence For this reason, tenure of INED be capped at 9 years * Consecutive service of 9 years or cumulative service of 9 years with interval.

Rationale?

MCCG 2012

Why 9 years?

Average tenure limit for INEDs of financial institutions in other jurisdictions is 9 years

Study by INSEAD Business School on 2,000 companies Conclusion: Optimal average tenure of INED: 7 to 9 years Accumulate the benefits of company-specific

knowledge without the cost of entrenchment

Has the board identified the skills required in terms of expertise, background and types of personalities?

Has the board ensured that a wide net has been cast to search for

independent directors? Does the director understand the business/industry of the

company? Can the director work as part of the board? Can the director work effectively with a diverse group of people –

can he disagree without being disagreeable? Does the director demonstrate a high level of integrity and honesty? Is the candidate able to commit sufficient time to discharge board

duties

Directors Are we short of

Independent directors

Questions Board should consider when extending the 9 years tenure

0 2 4 6 8 10 12

Malaysia

Singapore

South Africa

Hong Kong

United Kingdom

France

Spain

Tenure of Independent Directors (Years)

Malaysia

Singapore

South Africa

Hong Kong

United Kingdom

France

Spain

Source: SC’s Corporate Governance Blueprint 2011

• Recommendation 3.3

Obtain shareholders’ approval to

continue as INED on an annual basis

What’s next, if tenure of an INED exceeded 9 years

MCCG 2012

• Recommendation 3.2

Re-designation as a Non-independent director

Alternative

Retirement from Office at the end

of AGM

? Results of Implementation

Finding: 165 out of 300 listed companies (55%) retain at least one INED beyond the 9 year tenure

Bursa Malaysia’s review of 300 listed companies’ 2012 – 2013 annual reports

Source: Bursa Malaysia’s Analysis of Corporate Governance Disclosures in Annual Reports (Released in December 2014) – Annual Reports 2012 - 2013

0%

10%

20%

30%

40%

50%

60%

Provide some form of justification and seekshareholders' approval

Did not seek shareholders' approval

55%

6%

Retain of INEDs beyond the 9 year tenure

Finding: Nearly half of top 100 Malaysian companies retain INEDs who had served over 9 years

MSWG’s findings for 2014 on top 100 co.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2012 2013 2014

34%

38%

46%

Percentage of top 100 Malaysian companies that have directors over 9 years on board

Source: MSWG’s 2014 survey on top 100 Malaysian companies

Finding: More than half of 873 listed companies have directors over 9 years on board

MSWG’s findings for 2014 on 873 listed co.

Source: Malaysia-Asean Corporate Governance Report 2014

42%

44%

46%

48%

50%

52%

54%

2012 2013 2014

54%

47%

53%

Percentage of 873 listed companies that have directors over 9 years on board

Finding: 291 out of 873 companies had a term limit of 9 years or less for its INEDs in 2014

MSWG’s findings for 2014 on 873 listed co.

Source: Malaysia-Asean Corporate Governance Report 2014

0%

5%

10%

15%

20%

25%

30%

35%

2013 2014

33% 33%

Percentage of 873 public listed companies in Malaysia that have a term limit of 9 years or less for its INEDs

Finding: Average tenureship of INEDs in 2014 is 7.2 years

MSWG’s findings for 2014 on 873 listed co.

Source: Malaysia-Asean Corporate Governance Report 2014

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014

6

6.6 7

6.7

7.2

Average INED tenureship (Years)

Finding: Since the introduction of MCCG 2012, MSWG noted the following:-

MSWG’s Observation

Source: The Observer, Message from the CEO of MSWG dated 29 May 2015

INEDs tenure exceeded 9 years to the

extent of 20 or 30 years

No resolutions were proposed for re-elections

Multiple number of INEDs who have exceeded the

limit were being put up for re-election simultaneously

INEDs have been re-elected over the 9-year limit without strong justifications