Public Feedback Sought : Appointments And Independence Of Directors

August 3, 2021

Bursa Malaysia Berhad (Bursa Malaysia) issued a consultation paper on 21 July 2021 to seek public feedback on its proposed amendments to the Main Market Listing Requirements and ACE Market Listing Requirements (collectively, LR) in relation to appointment and independence of directors.

In its statement, Bursa Malaysia stated that the COVID-19 pandemic has highlighted the importance for directors to continuously assess their board composition and structure to ensure that it is fit for purpose in the new normal. In this light, the emphasis is now centred on a director’s tenure, quality and integrity as these criterias are crucial to the effectiveness of a board.

For the purposes of good governance, leadership continuity and board independence within the market, the following 2 key enhancements to the LR are being proposed:

1. Limiting the tenure of an independent director (ID) to not more than a cumulative period of 12 years

Presently, the tenure of an ID is not prescribed or limited in the LR.

To encourage board renewal and strengthen independence, Bursa Malaysia proposes to enhance the definition of ID under the LR by specifying that:

An ID is one who has not served as an ID of an applicant / listed issuer or its related corporation[1] for a cumulative period of more than 12 years from the date of his appointment[2].

The calculation of a 12 year tenure will also comprise of the ID’s tenure in a related corporation. This means that his service on a listed subsidiary will also be taken into account.

The rationale is that serving on the board of any related corporation for a prolonged period may increase the risk of such ID being familiar with the listed issuer group and management which may affect his independence.

Nevertheless, under the proposal, an ID who serves more than 12 years may be re-appointed as an ID again, subject to the following conditions that he has:

a) satisfied all the criteria on independence as set out in the LR.

b) observed the appropriate cooling-off period of a minimum 3 years.

c) passed and obtained the shareholders’ scrutiny and approval.

Requiring a listed issuer to have and publish a fit and proper policy for the appointment and re-appointment of directors

Presently, under the LR, a listed issuer must, inter alia:

a) ensure that its directors possess the character, experience, integrity, competence and time to effectively discharge their respective roles.

b) disclose in its annual report, a statement about the activities of the nominating committee (NC Statement) which includes how the requirements are met, the board nomitation and election process as well as board and director assessment and the criteria used.

With the aim to improve board quality across the listed issuer group,  Bursa Malaysia proposes to enhance the LR[3] by requiring a listed issuer to:

a) have a fit and proper policy for the appointment and re-appointment of directors of the listed issuer and its subsidiaries (Policy).

b) ensure the Policy addresses board quality and integrity.

c) make available the Policy on its website.

d) disclose the application of the Policy in the NC Statement.

The rationale for a Policy is to recognise the importance of applying corporate governance practices flexibly based on each listed issuer’s requirements and circumstances.

With this Policy, any appointment of director will be subject to the review and assessment of the nominating committee as well as the shareholders’ approval. Bursa Malaysia believes that the proposal complements the existing LR in improving the overall quality of the board of directors and promoting greater transparency on the criteria for board appointments.

Implementation Period

Bursa Malaysia proposes to give a 12 month grace period for listed issuers to comply with the abovementioned  proposed requirements. This is aimed to:

a) provide affected listed issuers with a reasonable timeframe to find new IDs who are qualified and suitable for their companies.

b) provide listed issuer sufficient time to asses, review and formulate an appropriate fit and  proper policy for the appointment and re-apopintment of directors.

The consultation paper on the proposed amendments to the LR can be accessed here. Bursa Malaysia welcomes views from the public and interested parties are invited to submit their comments and feedback by 1 September 2021.

Authored by Lily Lee Zai Lii, an Associate and Cindy Lim Xin Yi, a Paralegal with the firm’s Capital Markets and M&A practice.

[1] Pursuant to paragraph / Rule 1.01 of the LR, related corporation of an applicant / listed issuer means –

(a) the holding company of the applicant / listed issuer;

(b) a subsidiary of the applicant / listed issuer; or

(c) a subsidiary of the holding company of the applicant / listed issuer.

[2] This is provided in the proposed subparagraph (h) of the definition of “independent director” in paragraph / Rule 1.01 of the LR.

[3] This is provided in paragraphs / Rules 15.01A and 15.08A(3) of the LR.