Implement two-tier voting to remove external auditors

By Devanesan Evanson

 

A CONTROLLING shareholder or parties acting in concert who have controlling shareholding (above 50%) can remove the external auditor at their whims and fancies as all that is required is a simple majority.

If they also sit on the board as EC/MD or EDs, there is a greater potential for conflict of interest as, being part of management, it would be their responsibility to ensure proper running of the business and to present true and fair financial statements.

This is when there will be a greater potential for issues to come to an impasse between executive shareholder directors and auditors.

A simple example will be a major shareholder (above 50%) who is also the EC of the PLC – the controlling shareholder can, at his own volition, remove the external auditor by outvoting all the other shareholders.

A quick check will indicate that there are PLCs which have such controlling shareholders.

So, has the time arrived for us to implement two-tier voting when it comes to the removal of external auditors?

Two-tier voting is not new to the corporate governance landscape.  Under the revised Malaysian Code on Corporate Governance 2021, companies are encouraged to adopt two-tier voting to retain independent directors who have served more than nine years and who wish to continue their tenure as independent directors.

External auditors are an important cornerstone of CG as they are appointed by shareholders to report to shareholders.

As such, greater protection should be offered to this important cornerstone of the quadrangular pillars that support good CG – the others being board, management and internal audit.

The two-tier approach empowers minority shareholders to play an effective role in promoting and upholding shareholder activism when it comes to deciding on the removal of external auditors. – June 7, 2021

 

Devanesan Evanson is the CEO of the Minority Shareholders Watch Group (MSWG).

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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