Corporate governance is the system by which organisations are directed and controlled. It encompasses the relationship between the board of directors, shareholders and other stakeholders, and the effects on corporate strategy and performance. Corporate governance is important because it looks at how these decision makers act, how they can or should be monitored, and how they can be held to account for their decisions and actions.

The published audited financial statements and related information are therefore of key importance. They will usually be the main information set to which shareholders and other stakeholders have access and this is why having credible financial statements supported by the auditor’s opinion is crucial.

Many regulatory authorities, including Malaysia, use a code of best practice, often termed a ‘comply or explain’ approach to corporate governance. Under this approach the regulatory authority issues a set of principles with which company directors of listed companies are expected to comply. In many jurisdictions disclosures are required in the financial statements to demonstrate compliance. Non-compliance is not expected, but in its event, the facts of the non-compliance must be clearly disclosed and explained.

In some jurisdictions, such as the U.S, a more prescriptive approach is used, whereby corporate governance requirements are set by legislation. Both the principles and the legislative approaches are broadly similar in the matters they address. They both deal with the importance of the board of directors having a balanced structure, emphasising the need for non-executive directors, and for robust procedures in relation to the appointment of board members, and their remuneration. They both describe the merits of audit committees and the need to monitor the effectiveness of internal controls. They both demand disclosure about these and other matters in the annual report.

Question

• Explain in detail on the significance of The Malaysian Code on Corporate Governance (MCCG) in enhancing the corporate governance culture among public listed companies in Malaysia. You can include topics discussed in The Corporate Governance Monitor.