Corporate Governance Guide
30 December 2014
This corporate Governance Guide (Guide) (Second Edition) is designed to help directors understand their role and duties to the company and its stakeholders. Its primary objective is to enhance professionalism in boards and their committees by providing: (a) suggestions on how to fulfil the governance obligations of companies listed on Bursa Malaysia Securities Berhad (the Exchange); and (b) practical examples of how the principles and recommendations of corporate governance can be implemented.
This Corporate Governance Guide (Guide) is issued by Bursa Malaysia Berhad for boards of directors (Boards) to gain a clear understanding in applying the principles and recommendations of the Malaysian Code on Corporate Governance 2012. This Guide is provided for information purposes only and is not exhaustive in its coverage. Boards must exercise discernment and diligence in the use of this Guide. It is the Boards' and company officers' responsibility to obtain independent, professional advice regarding any specific set of facts or issues before using or relying on it.

This Guide has made reference to the principles and recommendations of the Malaysian code on corporate Governance 2012 (code), the Listing requirements of Bursa Malaysia Securities Berhad (Listing requirements) and primary legislative and regulatory provisions.

Whilst the code's principles and recommendations are included throughout this Guide, companies should refer to the relevant source documents for greater detail.

This Guide contains examples, checklists and questionnaire. They are meant to provide guidance only, are not meant to be exhaustive and should not be rigidly adopted by companies in isolation of the law and circumstances.

In this Guide, unless expressly stated, words importing the singular shall be construed as importing the plural and vice-versa; words importing the masculine gender include the feminine; and words used in the present tense include the future as well.

Companies are advised to adapt the materials contained in this Guide to suit the circumstances of their particular industry, company and business. This is consistent with the approach encouraged by the code that -

"companies must be encouraged to consciously address their governance needs. In this respect, companies must avoid compliance with form or "box ticking" and instead, should focus their efforts on exercising their judgment on corporate governance practices best suited for their companies."

This Guide aims to raise the level of corporate governance through the structuring and implementation of sound practices and processes which engender an effective board. It strives to provide practical insights into better practices, including how such practices can be adhered to in substance rather than in form, so as to help boards achieve their strategic objectives and build sustainable value in their businesses.

Companies should create an ethical environment that encourages management to do the right thing and to understand that this is vital to the company's sustainable financial performance. This Guide is developed and structured into nine chapters with each chapter addressing the determinants of effective governance whilst exploring the underpinnings of the code.

Chapter 1 explains the mechanics of company leadership and culture. This chapter addresses the "tone at the top" that sets the values of the entire business enterprise. an effective board essentially consists of directors who are engaged, committedand well-informed and who possess diverse skills and experience relevant to the business.

Chapter 2 looks at how effective boards should develop the right balance between their advisory role of engaging in the company's strategic decisions and allowing management sufficient latitude to run the company's operations. The board fulfils its fiduciary role by scrutinising management's performance and the quality, reliability and transparency of both financial and non-financial information provided by management.

Chapter 3 looks at the foundation for an independent, objective and effective audit committee. The board cannot by itself monitor financial transactions and maintain accounting records. This chapter examines the establishment of the audit committee and its responsibility on the oversight, monitoring and reporting on the performance of the business enterprise.

Chapter 4 focuses on the four fundamental responsibilities that must be assumed by an audit committee:

- assessing the processes related to the company's risks and control environment (unless delegated to a specific committee by the board);

- overseeing financial reporting;

- evaluating the internal and external audit processes; and

- reviewing related party transactions and conflict of interest situations.

In such a dynamic reporting environment, it is vital for the audit committee to be made up of members who are ready and prepared to engage in dialogue on equal terms with the external and internal auditors and with senior management on financial disclosures and the accounting judgments made in preparing the financial statements.

Chapter 5 looks at the governance role of the nominating committee. This committee is normally entrusted with identifying qualified individuals to serve as board members and recommending such candidates for appointment to the board and board committees. The nominating committee also conducts periodic evaluations to assess the effectiveness of the board as a whole, board committees and contribution of individual directors, including independent directors.

Chapter 6 focuses on how the remuneration committee should deal with and recommend the remuneration framework to attract and retain the directors, chief executive officer (cEo) and senior management needed to run the company successfully for the board's approval. Growing shareholder activism and concomitant pressures for the disclosure of directors' remuneration have also placed remuneration policies and processes under scrutiny. remuneration packages of executive directors should be structured to link rewards to corporate and individual performance. In the case of non-executive directors, the level of remuneration should reflect the experience and level of responsibilities involved.

Chapter 7 addresses the board's assessment of the processes relating to the company's risks and control environment. a robust risk management process which systematically identifies, assesses and mitigates the spectrum of risks facing a company can help boards effectively identify and manage principal risks. This chapter also discusses that in order for the audit committee to obtain reasonable assurance of the integrity of the financial reporting process, the committee needs to have a clear understanding of the control environment and framework to effectively challenge and test the control environment as established by management.

A company's audit process is executed by the internal and external auditors. Chapter 8 looks into the audit committee's responsibility to ensure that audit efforts are coordinated and that there is effective communication between both the auditors. This chapter also discusses the selection, role and scope of the internal and external auditors.

Internal audit is well placed to provide the audit committee with insights into the operations and results of a robust risk management programme, together with an effective framework of internal control. The external auditor and audit committee should have a strong and candid relationship. It must be made clear that while external auditors deal with management they work for the audit committee and report to shareholders.

And finally, Chapter 9 looks at the various aspects of shareholder and stakeholder relations. The responsiveness of senior management and boards to investors is a key component of a company that embraces ongoing accountability. Companies around the globe are faced with increased stakeholder demands for transparency with respect to corporate performance, including financial performance, governance and operational practices, environmental impact, social impact as well as the business culture the company portrays to the public.

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