7/27/2019 Crg Chapter 9

1/5

OVERVIEW OF CORPORATE GOVERNANCE

Corporate governance has drawn world attention when the big

companies such as Enron in United Kingdom and WorldCom in

United States collapse in 2001 and 2002 respectively.

With regards to this matter, researchers began to explore the

corporate governance field from many perspectives and authorities

started to implement rules and regulations to overcome this issue.

Countries all around the world setting the best practice as a

guideline; Cadbury Report was produced in United Kingdom,

Sarbanes Oxley in United States, The Dey Report in Canada, the

Vienot Report in France, the Olivencia Report in Spain, the King s

Report in South Africa, Principles and Guidelines on Corporate

Governance in New Zealand and the Cromme Code in Germany.

The goal of most of this regulation was to improve firms corporate

governance environments. Review has been done from time to time

to iron up the massive governance issue and to come out with good

corporate governance.

Good corporate governance is a corporate set up leads to maximize

the value of the shareholders legally, ethically and on a sustainable

basis, while ensuring equity and transparency to every stakeholder:

the company s customers, employees, investors, vendor-partners,

the government of the land and the community.

Today, corporate governance became a determinant to many

subjects in identifying companys strengths and functions.

1

7/27/2019 Crg Chapter 9

2/5

One of the most important functions that corporate governance can

play is in ensuring the quality of the financial reporting process.

DEVELOPMENT OF CORPORATE GOVERNANCE IN MALAYSIA

Malaysia can hide from facing the corporate governance problem.

After the East Asian crisis in 1997, Malaysia saw the need to

improve corporate governance in firms to regain investor s

confidence.

This Asian Financial Crisis introduced the term of corporate

governance and drew attention of the public about the weaknesses

of Malaysian corporate governance practice.

In addition the irregularities in Renong Berhad, the Bumiputera

Malaysia Finance (BMF) scandal, the Perwaja fiasco, the downfall of

Sime Bank, the corporate misconduct of Technology Resources

Industries (TRI) Berhad and the massive trouble of Malaysian Airline

Systems (MAS) forced government to enhance corporate

governance regulations.

In 2001, Malaysia s capital market experienced two eventsregarding corporate governance reform.

The first was the introduction of Malaysian Code on Corporate

Governance (MCCG) as part of the Bursa Malaysia Securities

(formerly known as Kuala Lumpur Stock Exchange) Listing Rules,

2

7/27/2019 Crg Chapter 9

3/5

and the second was the establishment of the Minority Shareholder

Watchdog Group (MSWG), a watchdog group primarily set up to

enhance shareholder activism by institutional investors.

Since 1998, government and private sector had chosen to enhancethe corporate law in order to improve the level of corporate

governance in the country.

The regulatory framework on corporate governance has undergone

tremendous change to further strengthen the financial and capital

market.

THE SIGNIFICANCE OF A CODE ON CORPORATE GOVERNANCE

FOR MALAYSIA

The Malaysian Code on Corporate Governance (Code) was

developed by the Working Group on Best Practices in Corporate

Governance (JPK1) and subsequently approved by the High Level

Finance Committee on Corporate Governance.

The Code was principally an initiative of the private sector.

The Code essentially aims to set out principles and best practiceson structures and processes that companies may use in their

operations towards achieving the optimal governance framework.

The significance of the Code is that it allows for a more constructive

and flexible response to raise standards in corporate governance as

3

7/27/2019 Crg Chapter 9

4/5

opposed to the more black and white response engendered by

statute or regulation.

The need for a code also results from economic forces and the need

to reinvent the corporate enterprise, so as to efficiently meetemerging global competition.

Standards developed for Malaysia must measure up to international

thinking o this subject. Therefore, in developing the Code, careful

consideration has been given to developments in other jurisdictions.

THE APPROACH UNDE R THE MALAYSIAN CODE ON

CORPORAT E GOVERNANCE

4

7/27/2019 Crg Chapter 9

5/5

There are three broad approaches to the issue of corporate

governance undertaken by jurisdictions around the world

A prescriptive approach where the standard of corporate

governance is set by specifying desirable practices coupled with

a requirement to disclose compliance with them.

A non-prescriptive approach This approach requires corporate

governance practices in a company to be disclosed. The

emphasis here is on the disclosure of actual corporate

governance practices. The thinking behind this approach is that

each companys corporate governance needs are different and

directors of companies should address these needs.

The hybrid approach This involves the use of broad principles

which are applied flexibly to the varying circumstances of individual companies.

5