Best practice in Malaysia
January saw the launch by Malaysia's Minority Shareholder Watchdog Group (MSWG) of A Guide of Best Practices for Institutional Shareholders and A Guide for Retail Shareholders, aimed at encouraging investors to discharge their ownership responsibilities, increasing shareholder activism, protecting minority shareholders' interests and increasing shareholder value.
MSWG was formed in 2000 as part of the Malaysian government's initiatives to advocate good corporate governance. The launch event, graced by YB Dato' Dr Ng Yen Yen, deputy minister of finance, attracted over 200 attendees from a wide spectrum of the Malaysian financial, professional and business communities.
Prior to the launch, the country fared well in a recent World Bank Report on the Observance of Standards and Codes (ROSC) in respect of corporate governance. The guides reinforce comments made late last year by deputy prime minister Dato' Sri Mohd Najib Tun Abdul Razak, who highlighted the role of activist investors in an address to the Malaysian Capital Market Summit, noting that, "Large institutional shareholders from more developed markets can force not merely companies but countries where they are invested to adopt global best practices for corporate governance. We must encourage investors to pro-actively demand better corporate governance practices. Institutional investors must be the torch bearers in this regard."
The guides are in line with Recommendation 112 of the Capital Market Masterplan and Recommendation 3.11 of Bank Negara Malaysia (Central Bank), and complement the existing Companies Act 1965, Guidelines of the Securities Commission, the Listing Requirements of Bursa Securities (Malaysian Stock Exchange), Malaysian Code on Corporate Governance (MCCG) and the Green Book (a document aimed at improving levels of governance at government-linked companies).
The guides detail the responsibilities of institutional/retail investors, including, performance monitoring, active engagement policies, management of conflicts of interest, and communicating to clients/beneficial owners.
One notable inclusion is a section on "Institutional Shareholder Engagement and Activism", stressing the role of institutional investors as not only equity owners, but stewards. The guide seeks to impress on institutional investors their duties with regard to constant and consistent engagement with companies, including private meetings with directors and management, and attendance and voting at annual/extraordinary general meetings.
One aspect of this is the suggestion that institutional shareholders should develop investment policies that should recognise the responsibilities to clients and beneficiaries. Moreover, the guide suggests that institutional shareholders may wish to engage on issues such as strategy, performance, independent directors and corporate social responsibility. These will be familiar to many in investment institutions in Europe and the US, but represent a significant advancement in the corporate governance environment in south-east Asia. However, there remain obstacles to active engagement by institutional shareholders, not least an inability to vote in many cases, as highlighted by the Asian Corporate Governance Association's publication last year of a report that found: "Proxy voting systems in Asia are, by and large, seriously antiquated and in need of improvement."
Nonetheless, institutional/retail investors, are expected to play a more pro-active role in the interest of not only their beneficiaries/themselves, but also other stakeholders. The publication of these guides of best practices will certainly encourage them and those in the `investment chain' to discharge their stewardship duties and a move that will be welcomed in many parts.
Tan Lye Huat is CEO of HIM Governance, an independent governance solutions and services organisation based in Singapore. He is also South-East Asia adviser to Governance for Owners LLP, a London-based independent partnership between major financial institutions, shareholders and executives dedicated to adding long-term value for clients by exercising owners' rights