The Securities Commission’s Corporate Governance Strategic Priorities For 2021 – 2023

Recently, the Securities Commission Malaysia (SC) issued the Corporate Governance Strategic Priorities 2021 – 2023 with the view of promoting environmental, social and governance agendas and leadership of boards. The SC outlined 11 targeted initiatives such as onboarding programs for directors on sustainability and investor education series on corporate governance and sustainability. These initiatives form part of SC's Capital Market Masterplan 3 outlining the Malaysian capital market's course for the next five years.

In this alert, the CG Strategic Priorities and the importance of ESG principles in corporate governance are discussed by our pupil Cuthbert Ephraim Chan Pak Hang.

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On 24 November 2021, the Securities Commission Malaysia (SC) issued the Corporate Governance Strategic Priorities 2021 – 2023 (CG Strategic Priorities) with the view of promoting environmental, social and governance (ESG) agendas and leadership of boards. The SC outlined 11 targeted initiatives such as onboarding programs for directors on sustainability and investor education series on corporate governance and sustainability. These initiatives form part of SC's Capital Market Masterplan 3 (CMP3), which was released in September 2021, outlining the Malaysian capital market's course for the next five years[1].

In this alert, the CG Strategic Priorities and the importance of ESG principles in corporate governance are discussed.

Emphasis On Board Refreshment

The SC will collaborate with the Institutional Investors Council (IIC) and the Minority Shareholders Watch Group (MSWG) to engage in ensuring that boards have the right mix of directors to address current challenges.

12 Years Tenure Limit Mandatory For Independent Directors

According to SC’s study, 46% of listed companies had at least one long-serving independent director on the board (tenure of 9 years or more) as at 31 October 2021. The SC believes that shareholders of public listed companies may be unaware of the concerns surrounding long-term independent director tenure and the need for board refreshment. Consequently, in 2022, Bursa Malaysia's Listing Requirements will be amended to set a statutory 12-year restriction on independent director tenure.

Acceleration Of Participation Of Women On Boards

Accordingly, SC will implement a Public-Private Partnership (PPP) to improve board diversity, including the acceleration of participation of women on companies’ boards and senior management. Listed companies are reminded that whilst it will be mandatory for their boards to include at least one female director, these companies’ boards should put in efforts to achieve the target of having women directors constituting 30% of board members to further harness the benefits of having a diverse board.

Enhancing The Mandatory Accreditation Programme (MAP)

The MAP is an onboarding programme that new directors of listed companies are required to complete within four months of appointment.

The current MAP will be enhanced to incorporate content on emerging issues such as the shift to a stakeholder economy as well as reputation and crisis management.

Strengthen The Environmental, Social And Governance Fitness Of Boards

The second Strategic Priority will provide capacity building for boards to enhance ESG leadership and increase the availability of information on listed companies' sustainability practices through the SC's Annual CG Monitor report[2].

Introduction Of Leading For Impact Programme (LIP)

The new onboarding programme focusing on sustainability will be introduced for directors of listed companies. The LIP will complement the MAP by providing directors with the foundational knowledge and practices to address sustainability effectively, with a focus on climate action and transition.

Capacity Building For Boards Of Mid And Small-Cap Companies

The boards’ ability to comprehend and address ESG issues is a requirement for ESG leadership. Deep dive programmes on critical ESG issues will be established as elective extensions of the LIP to promote continued capacity building on sustainability, particularly for boards of mid-and small-cap businesses.

Enhance Transparency On Sustainability Practices Of Listed Companies

Bursa Malaysia's sustainability reporting will be improved and rolled out to listed companies in Q2 of 2022. The goal is to increase the quality of sustainability disclosures while also meeting the information demands of capital market stakeholders.

Support Investor Stewardship And Engagement

This strategic priority aims to enhance retail shareholder-board engagement on corporate governance and sustainability through investor education and support institutional investor stewardship and engagement.

Investors Education For Corporate Governance And Sustainability For Retail Investors

The SC will collaborate with the MSWG to develop a series of programmes to enhance retail shareholders' awareness and understanding of corporate governance and sustainability issues including evaluating companies’ governance practices, measures to improve board diversity, digital aptitude and performance in managing sustainability risks and opportunities.

Support Institutional Investor Stewardship And Engagement Through Perkukuh Pelaburan Rakyat (PERKUKUH) Programme

The SC will support the Ministry of Finance (MOF) in developing baseline governance requirements and best practices that government-linked investment companies (GLICs) are expected to adopt under the Government launched PERKUKUH programme.

The SC will also work closely with the IIC and Capital Markets Malaysia to update and enhance the Malaysian Code for Institutional Investors to promote effective and outcome-oriented stewardship and capacity-building needs of GLICs to scale up their engagement approach and measures.

Leverage Digital Tools To Enhance Transparency

The objective of the fourth Strategic Priority is to widen public access to corporate governance and sustainability data. The SC will explore mechanisms to enhance data availability for example, through the use of a public dashboard.

It is imperative to provide access to current and reliable corporate governance and sustainability data such that stakeholders may better understand a company's corporate governance structure and practices.

Through the adoption of MCCG online, the SC will explore the development of a public dashboard where corporate governance and sustainability information, including data on board composition and material sustainability risks, will be made available to the public in an interactive online format.

Develop Further Collaboration With Universities On Corporate Governance

To improve its engagement with youth on corporate governance, the SC plans to expand its collaboration with universities. The collaboration would include corporate governance research to expose students to current discussions and developments as well as to improve empirical evidence on these topics.

Conclusion

Investors have shown a fundamental appreciation for good corporate governance and have become increasingly aware of ESG issues relating to a target's operations. As a result of increased data availability and demands for enhanced governance and good corporate governance has become more important in the investment decision-making process.

Therefore, the CG Strategic Priorities lays the groundwork for ESG with new or enhanced education programmes for youth, investors, and listed company directors. The adoption of the CG Strategic Priorities for companies and investors is a welcome feature in light of the changing times.

Authored by pupil, Cuthbert Ephraim Chan Pak Hang from the firm’s Corporate & Real Estate Transactions practice

[1] An Overview Of The Capital Market Masterplan 3 write up by RDS can be accessed here – https://www.rdslawpartners.com/post/an-overview-of-the-capital-market-masterplan-3 [2] The SC's Annual CG Monitor report 2021 can be accessed here – https://www.sc.com.my/api/documentms/download.ashx?id=aa1a0385-f2fe-473e-8499-5876a1ad85ea

17 January 2022