By the Minority Shareholders Watch Group (MSWG)
Editor’s Note: This is the second part of the opinion on MCCG 2021 by the Minority Shareholders Watch Group (MSWG). Part 1 of the opinion can is accessible here.
THE MCCG 2021 introduces several new practices that place greater emphasis on the sustainability risks and opportunities in the PLC’s day-to-day operation.
This emphasis on sustainability is in line with the definition of CG which talks about structures and processes that enhance long-term shareholder value whilst taking into consideration stakeholders’ interests; sustainability is both a shareholder and stakeholder interest.
Medium and smaller PLCs tend to place lesser emphasis on the importance of sustainability issues by providing limited disclosure to shareholders. It is common to see just two or three pages of disclosure in annual reports on the different material risks that affect business sustainability.
But sometimes, the nature of the business of these medium and smaller PLCs has a substantial impact on their sustainability.
Under the revision, it is clearly stated that the Board and management are responsible for the governance of sustainability in the company including setting the company’s sustainability strategies, priorities and targets.
In addition, the performance assessment of board and senior management will now have to include a review on their performance in addressing the company’s material sustainability risks.
Independent experts for board evaluations
Large companies will now have to engage independent experts to conduct board evaluation at least once every three years. This is a more specific requirement (with timeline stated) as opposed to the previous practice of carrying out such evaluations periodically.
There is also a requirement that the Board discloses on a named basis the top five senior management’s remuneration component including salary, bonus, benefits in-kind and other emoluments in bands of RM50,000.
This is an existing practice with the lowest adoption rate, even by bigger PLCs. Only 122 PLCs applied this practice out of the 868 PLCs assessed by the SC (CG Monitor 2020).
The common reason given by a PLC for not adopting this practice is the fear/risk that their senior management staff will be ‘pinched’ by another company if the approximate remuneration of these senior management is disclosed.
Another reason given is the maintenance of ‘harmony’ amongst the senior management by avoiding them being able to compare their salaries.
Publication of AGM minutes within 30 business days
Some PLCs either do not publish the minutes of AGM or if they do, they normally take months to do so.
Under the MCCG 2021, PLCs should publish the complete minutes of the AGM not later than 30 business days after the meeting. The minutes should comprise meeting proceedings including issues or concerns raised by shareholders and responses by the company. This will enable those shareholders who were unable to attend the AGM to appreciate the deliberations at the AGM. Again, transparency is enhanced.
There is already a listing requirement for PLCs to publish a summary of the key matters discussed (KMD) at the AGM though no timeframe is stipulated.
Since the KMD at the AGM is part of the meeting minutes, it would make more sense to amend the LRs to stipulate that the minutes should be published within 30 days as the minutes incorporates the KMD anyway.
If there is a need to emphasise the KMD, this can be done by highlighting the related paragraphs, perhaps in bold font, within the minutes. This would cut down the work for PLCs as they will no longer need to prepare a KMD for the meeting to comply with LRs and the disclosure of minutes of AGM within 30 days as a MCCG 2021 requirement.
30% women at board and senior management
Previously, the practice of having at least 30% women directors only applies to large companies. Now, this practice will be applied across the board.
The company’s policy on gender diversity now extends to senior management and needs to be disclosed in the annual report.
If the composition of women directors on a Board is less than 30%, the Board should disclose the timeframe and measures that it has taken or will be taking to achieve the 30% (reasonably three years or less).
It is time for all PLCs to relook at their board composition if they have not done so earlier, especially the all-male boards.
Empowering calibre women to be on boards enhances board diversity. These women should be independent directors preferably. Hopefully, we do not see more wives and daughters being appointed to the board as executive directors to make up the numbers.
And we all know that the excuse that there are not enough capable women candidates is just a convenient excuse.
The implementation timeline of MCCG 2021
The first batch of companies that is required to report their application of the MCCG 2021 will be companies with financial year ended Dec 31, 2021. The reporting will be based on their activities from Jan 1, 2021 to Dec 31, 2021.
This may leave PLCs a very tight deadline (it is already May 2021 now) to apply some of the practices especially on matters regarding nomination and appointment of directors.
Conclusion
The MCCG 2021 is a boon for minority shareholder activism. Overall, much subjectivity has been enhanced by quantifiable objective measures. The CG bar has been raised for the better. – May 10, 2021
The MSWG was established as a government initiative in the year 2000 as part of a broader capital market framework to protect the interests of minority shareholders through shareholder activism. It has evolved into an independent research organisation on corporate governance matters.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
