THE findings of the Corporate Governance Monitor 2021 (CG Monitor 2021) are hot off the press as they were released by the Securities Commission on Nov 24.
In 2020, improvements were recorded in the overall adoption of the Malaysian Code on Corporate Governance (MCCG). Out of the 36 best practices, 24 (2019: 23 best practices) had recorded adoption levels of at least 90%, i.e at least 90% of listed companies have adopted the practices.
However, the disclosure of senior management remuneration in bands of RM50,000 on a named basis (Step-Up practice 7.2) continues to record a low take-up rate. Nevertheless, the total number of listed companies that adopted this Step-Up practice was 146 listed companies compared to 122 in 2019.
There was even a lower adoption of the practice requiring detailed disclosure of senior management remuneration on a named basis (Step-Up practice 7.3) with only 5% of listed companies adopting this practice. There were only nine new adopters in 2020.
There are a few reasons given for the non-adoption of these Step-Up practices.
Firstly, the reason given is that making such disclosure may create jealousy and envy among fellow managers in the top-five category when they start comparing their respective remuneration.
There may be more jealousy and envy if other staff (outside the top-five management) become aware of the top-five remuneration, they reasoned. As a result, some listed companies have argued that all this jealousy and envy will not be conducive to a harmonious healthy working environment.
Trade secret
Secondly, it has been opined, that if other companies know the remuneration (or the range, if disclosed in RM50,000 bands), there is a risk that the other companies may poach the staff by offering higher remuneration.
And when key staff are lost, business may be impacted and that is not in the best interest of the company.
Thirdly, the fear of safety has also been cited as a reason for the non-disclosure. Top-five management often earn more than non-executive directors and other management staff.
As such, if the high remuneration of top-five management is publicly available, there is a risk to the safety of these senior management and their families from a criminal perspective.
Fourthly, some listed companies have just declared that they do not see how such disclosures can contribute to good corporate governance.
The regulators would have already considered these reasons/excuses. The regulators feel that the advocated disclosures contribute to good corporate governance as they enable the shareholders to play a better activism role when it comes to these senior management remunerations and how they impact the performance of the company.
Of course, if the low take-up for these two Step Up practices continue, there is a possibility that one day these practices may become rules. – Nov 27, 2021
Devanesan Evanson is the CEO of the Minority Shareholder Watch Group.
The views expressed are solely of the authors and do not necessarily reflect those of Focus Malaysia.
