1. BKAI3043 RISK MANAGEMENT AND
CORPORATE GOVERNANCE
GROUP A
TOPIC 7 : CODE OF CORPORATE GOVERNANCE AND
BEST PRACTICES
NUR HAZIQAH BT ABD HAMID 195496
AMALINA SURAYA BT NASRI 195572
NOOR AZIMAH BT MAT ISA 195720
ROBIATUL ADAWIYAH BT TAKAI JUDIN 195747
JUNIZA BT SHAFIE 195772
HOE LENG SEE 195830
TEH HUI CHEN 195951
KOAY BEE CHENG 196449

2. MALAYSIAN CODE ON
CORPORATE GOVERNANCE
2012
(MCCG2012)
&
TENAGA NASIONAL BERHAD
(TNB)

3. Weakness of MCCG 2007
 Overlapping authority of the regulatory
institutions governing the securities market
 Weak protection of minority shareholders
 Lacking of punishment for directors if breaches
of duty in MCCG

4. Malaysian Code on Corporate
Governance 2012
( MCCG 2012 )
 Consists 8 Principle & 26 recommendation
 All companies are encouraged to adopt
MCCG 2012
 MCCG 2012 is effective immediately
 Extent report compliance with financial year
ending 31 December 2012

5. ESTABLISH CLEAR
Principle 1 ROLES AND
RESPONSIBILITIES
The responsibilities of the
{ board, which should be set out
in a board charter, include
management oversight, setting
strategic direction premised on
sustainability and promoting
ethical conduct in business
dealings

6. 1.1 The board should establish clear functions reserved for the
board and those delegated to management
1.2 The board should establish clear roles and responsibilities in
discharging its fiduciary and leadership functions

7. 1.3 The board should formalise ethical standards through a code of
conduct and ensure its compliance.

8. 1.4 The board should ensure that the company’s strategies promote
sustainability

9. 1.5 The board should have procedures to allow its members access to
information and advice

10. 1.6 The board should ensure it is supported by a suitably qualified and
competent company secretary

11. 1.7 The board should formalise, periodically review and make
public its board charter
Division between the board and management committees established by
the board

12. Processes and procedures for convening board meetings

13. MCCG 2012 2007 Code
Part 2 : AA XVI
Relationship of the board to
management
The board, together with the
chief executive officer, should
Principle 1 1.1 The boardclear
establish
should develop position descriptions
for the board and for the chief
functions reserved for executive officer, involving
Establish clear the board and those definition of the limits to
roles and delegated to management’s responsibilities
responsibilities management In addition, the board should
approve or develop, with the
chief executive officer, the
corporate objectives for which
the chief executive officer is
responsible to meet

14. MCCG 2012 2007 Code
Part 1 : A I
The board
Every listed company should be headed by
an effective board which should lead and
control the company.
Part 2 : AA I
Principal responsibilities of the board
The board should explicitly assume the
1.2 The board should establish following six specific responsibilities, which
clear roles and facilitate the discharge of the board’s
responsibilities in stewardship responsibilities:
discharging its fiduciary
and leadership functions • Reviewing and adopting a strategic plan
for the company
• Overseeing the conduct of the company’s
business to evaluate whether the business
is being properly managed
• Identifying principal risks and ensuring
the implementation of appropriate
systems to manage these risks

15. MCCG 2012 2007 Code
• Succession planning, including
appointing,
training, fixing the compensation of and
where appropriate, replacing senior
management
• Developing and implementing an investor
relations programme or shareholder
communications policy for the company
• Reviewing the adequacy and the integrity
of the company’s internal control systems
and management information systems,
including systems for compliance with
applicable laws, regulations, rules,
directives and guidelines.
1.3 The board should formalise
ethical standards through a -
code of conduct and ensure
its compliance
1.4 The board should ensure that
the company’s strategies -
promote sustainability

16. MCCG 2012 2007 Code
Part I : A III
Supply of information
The board should be supplied in a timely
fashion with information in a form and
of a
quality appropriate to enable it to
discharge its duties
1.5 The board should have
Part 2 : AA XIX
procedures to allow its
Access to information
members access to
Directors should have access to all
information and advice
information within a company whether
as a full board or in their individual
capacity, in furtherance of their duties
Part 2 : AA XX
Access to Advice
There should be an agreed procedure for
directors, whether as a full board or in
their
individual capacity, in furtherance of
their duties, to take independent
professional advice at the company’s
expense, if necessary

17. MCCG 2012 2007 Code
Part 2 : AA XXI
All directors should have access to the
advice and services of the company
secretary
Part 2 : XXII
1.6 The board should ensure it Directors should appoint as secretary,
is supported by a suitably someone who is capable of carrying out
qualified and competent the duties to which the post entails, and
company secretary his removal should be a matter for the
board as a whole. The board should
recognise that the chairman is entitled to
the strong and positive support of the
company secretary in ensuring the
effective functioning of the board
1.7 The board should formalise,
periodically review and
make public its board
charter -

18. STRENGTHEN
Principle 2 COMPOSITION
The board should have
{ transparent policies and
procedures that will assist
in the selection of board
members. The board
should comprise members
who bring value to board
deliberations.

19. The board should establish a Nominating Committee
Recommendation
which should comprise exclusively of non-executive
2.1
directors, a majority of whom must be independent.
Recommendation 2.1
-exclusively
non-executive(6/6)
-majority independence(3/6)

20. Recommendation The Nominating Committee should develop, maintain
and review the criteria to be used in the recruitment
2.2
process and annual assessment of directors.

21. Recommendation The board should establish formal and transparent
remuneration policies and
2.3
procedures to attract and retain directors.

22. Who set the non executive directors and executive directors remuneration?

23. MCCG 2012 2007 Code
Part I : A IV
Appointments to the Board
There should be a formal and transparent
procedure for the appointment of new
directors to the board
Part 2 : AA VIII
Appointments to the board
2.1 The board should The board of every company should
establish a Nominating appoint a committee of directors
Principle 2 Committee which composed exclusively of non-executive
should comprise directors, a majority of whom are
exclusively of non- independent, with the
Strengthen
executive directors, a responsibility for proposing new
composition majority of whom must nominees to the board and for assessing
be independent directors on
an ongoing basis. The actual decision as to
who should be nominated should be the
responsibility of the full board after
considering the recommendations of such
a
committee. The nominating committee
should:-

24. MCCG 2012 2007 Code
• recommend to the board, candidates for
all directorships to be filled by the
shareholders or the board. In making its
recommendations, the nominating
committee should consider the candidates’
– skills, knowledge, expertise and experience
– professionalism
– integrity
– in the case of candidates for the position of
The revised Code provides independent non-executive directors, the
nominating committee should also evaluate
greater clarity on the the candidates’ ability to discharge such
aspects which a responsibilities/functions as expected from
nominating committee independent non-executive directors
should consider when
• consider, in making its recommendations,
recommending candidates candidates for directorships proposed
for by the chief executive officer and, within
directorships the bounds of practicability, by any
other senior executive or any director or
shareholder
• recommend to the board, directors to fill
the
seats on board committees

25. MCCG 2012 2007 Code
Part 2 : AA IX
The board, through the nominating
committee, should annually review its
required mix of skills and experience and
other qualities, including core competencies
which nonexecutive directors should bring
to the board. This should be disclosed in the
annual report
2.2 The Nominating Committee Part 2 : AA X
should develop, maintain The board should implement a process, to be
and review the criteria to be carried out by the nominating committee
used in the recruitment annually, for assessing the effectiveness of
process and annual the board as a whole, the committees of the
assessment of directors board, and for assessing the contribution of
each individual director, including
independent non-executive directors, as well
as the chief executive officer. All assessments
and evaluations carried out by the
nominating committee in the discharge of all
its
Functions should be properly documented

26. MCCG 2012 2007 Code
Part 2 : AA XIII
Directors’ training
As an integral element of the process of
appointing new directors, each company
should provide an orientation and
education programme for new recruits to
the board
Part 1 : B I
The level and make-up of Remuneration
Levels of remuneration should be sufficient
to attract and retain the directors needed to
2.3 The board should run the company successfully. The
establish formal and component parts of remuneration should be
transparent structured
remuneration policies so as to link rewards to corporate and
and procedures to individual performance, in the case of
attract and retain executive directors. In the case of non-
directors executive directors, the level of
remuneration should reflect the experience
and level of responsibilities undertaken by
the particular non-executive concerned

27. MCCG 2012 2007 Code
Part 1 : B II
Procedure
Companies should establish a formal and transparent procedure
for developing policy on executive remuneration and for fixing
the remuneration packages of individual directors
Part 1 : B III
Disclosure
The company’s annual report should contain details of the
remuneration of each director
Part 2 : AA XXIV
Remuneration Committees
Boards should appoint remuneration committees, consisting
wholly or mainly of nonexecutive directors, to recommend to the
board the remuneration of the executive directors in all its forms,
drawing from outside advice as necessary. Executive directors
should play no part in decisions on their own remuneration.
Membership of the remuneration committee should appear in the
directors’ report.
The determination of remuneration packages of non-executive
directors, including nonexecutive chairmen, should be a matter
for the board as a whole. The individuals concerned should
abstain from discussing their own remuneration

28. REINFORCE
Principle 3 INDEPENDENCE
{ The board should have
policies and procedure to
ensure effectiveness and
independent directors.

29. Recommendation 3.1
Board Should Undertake An Assessment
of Its Independent Directors Annually

31. Recommendation 3.2
The tenure of an independent director should not
exceed a cumulative term of nine years. Upon
completion of the nine years, an independent director
may continue to serve on the board subject to the
director’s re-designation as a non-independent
director
Recommendation 3.3
The board must justify and seek shareholders’
approval in the event it retains as an independent
director, a person who has served in that capacity
for more than nine years

35. Recommendation 3.4
The positions of chairman and CEO should be held
by different individuals, and the chairman must be a
non-executive member of the board

36. Recommendation 3.5
The board must comprise a majority of
independent directors where the chairman of
the board is not an independent director

37. MCCG 2012 2007 Code
3.1 The board should undertake an
assessment of its independent -
directors annually
3.2 The tenure of an independent
director should not exceed a
cumulative term of nine years.
Upon completion of the nine -
Principle 3 years, the independent director
Reinforce may continue to serve on the
Independence board subject to the director’s
re- designation as a non-
independent director
3.3 The board must justify and seek
shareholders’ approval in the
event it retains as an -
independent director, a person
who has served in that
capacity for more than nine
years

38. MCCG 2012 2007 Code
Part 2 : AA II
Chairman and Chief Executive
Officer
There should be a clearly accepted
3.4 The positions of chairman and division of responsibilities at the head
CEO should be held by of the company which will ensure a
different individuals, and the balance of power and authority, such
chairman must be a non- that no one individual has unfettered
executive member of the powers of decision. Where the roles
board are combined there should be a
strong independent element on the
board. A decision to combine the
roles of chairman and chief executive
officer should be publicly explained.
3.5 The board must comprise a
majority of independent -
directors where the chairman
of the board is not an
independent Director

39. FOSTER
Principle 4 COMMITMENT
{ Director should devote
sufficient time to carry
out their responsibilities,
regularly update their
knowledge and enhance
their skills.

45. UPHOLD INTEGRITY
Principle 5 IN FINANCIAL
REPORTING
The board should ensure
financial statements are a
reliable source of
information.

48. MCCG 2012 2007 Code
Part 2 : BB II
The duties of the audit committee should
5.1 The Audit Committee
include the following:
should ensure financial
(i) To consider the appointment of the
statements comply with
external auditor, the audit fee and any
applicable financial question of resignation or dismissal
reporting standards (ii) To discuss with the external auditor
before the audit commences, the nature
and scope of the audit, and ensure co-
Principle 5 ordination where more than one audit
firm is involved;
(iii) To review the quarterly and year-end
financial statements of the board,
Uphold focusing particularly on–
integrity in • any change in accounting policies
5.2 The Audit Committee
financial and practices
should have policies and • significant adjustments arising from
reporting
procedures to assess the the audit
suitability and • the going concern assumption
independence of external • compliance with accounting
auditors standards and other legal
requirements
(iv) To discuss problems and reservations
arising from the interim and final audits,
and any matter the auditor may wish to
discuss (in the absence of management
where necessary)

49. MCCG 2012 2007 Code
(v) To review the external auditor’s management
letter and management’s response
(vi) To do the following, in relation to the internal
audit function–
• review the adequacy of the scope , functions and
resources of the internal audit function, and that it
has the necessary authority to carry out its work
• review the internal audit programme and results of
the internal audit process and, where necessary,
• ensure that appropriate actions are taken on the
recommendations of the internal audit function
• review any appraisal or assessment of the
performance of members of the internal audit
function
• approve any appointment or termination of senior
staff members of the internal audit function
• take cognisance of resignations of internal audit
staff members and provide the resigning staff
member an opportunity to submit his reasons for
resigning
(vii) To consider any related-party transactions that may
arise within the company or group
(viii) To consider the major findings of internal
investigations and management’s response
(ix) To consider other topics as defined by the board.

50. RECOGNISE AND
Principle 6 MANAGE RISKS
The board should
establish a sound risk
management framework
and internal controls
system

51. Recommendation 6.1
The board should establish a sound
framework to manage risks

52. Recommendation 6.2
The board should establish an internal audit
function which reports directly to the Audit
Committee

53. MCCG 2012 2007 Code
Part I : D II
Internal control
6.1 The board should The board should maintain a sound system of
establish a sound internal control to safeguard shareholders’
framework to Investment and the company’s assets
manage risks
Part 2 : BB VII
The board should establish an internal audit
function and identify a head of internal audit who
Principle 6 reports directly to the audit committee. The head
Recognise and of internal audit will be responsible for the regular
review and/or appraisal of the effectiveness of the
manage risks
6.2 The board should risk management, internal control, and
establish an governance processes within the company
internal audit
Part 2 : BB VIII
function which
The internal audit function should be independent
reports directly
of the activities they audit and should be
to the Audit
performed with impartiality, proficiency and due
Committee
professional care. The board or the audit
committee should determine the remit of the
internal audit function

54. ENSURE TIMELY AND
Principle 7 HIGH QUALITY
DISCLOSURE
Companies should establish
corporate disclosure policies
and procedures to ensure
comprehensive, accurate
and timely disclosures.

55. The board should ensure
that corporate disclosure
policies and procedure.
The board should encourage
the company to leverage on
information technology for
effective dissemination of
information.

63. STRENGTHEN
RELATIONSHIP
Principle 8 BETWEEN COMPANY
AND SHAREHOLDERS
The board should
facilitate the exercise of
ownership rights by
shareholders

64. The board should
take reasonable
The board should
steps to encourage
encourage poll
shareholder
voting
participation at
general meetings
The board should
promote effective
communication and
proactive
engagements with
shareholders

65. http://www.tnb.com.my/investors-media/circulars-notice-to-shareholders.html

70. TNB Annual Report 2011 (page 2)

72. TNB Annual Report 2011 (page 331)

73. TNB Annual Report 2011 (page 165)

75. http://www.tnb.com.my/investors-media/request-for-meeting.html

76. MCCG 2012 2007 Code
8.1 The board should
take reasonable Part 3 : I
steps to encourage Shareholder voting
shareholder Institutional shareholders have a responsibility
participation at to make considered use of their votes
general Meetings
Principle 8
8.2 The board should
encourage poll
Strengthen –
voting
relationship
between
company and
shareholders 8.3 The board should Part I : C I
promote effective Dialogue between companies and investors
communication Companies and institutional shareholders
and proactive should each be ready, where practicable, to
engagements with enter into a dialogue based on the mutual
shareholders understanding of objectives

77. MCCG 2012 2007 Code
Part 2 : CC I
The relationship between the board and
shareholders
The boards should maintain an effective
communications policy that enables both the board
and management to communicate effectively with
its shareholders, stakeholders and the public. This
policy must effectively interpret the operations of
the company to the shareholders and must
accommodate feedback from shareholders, which
should be factored into the company’s business
decisions
Part 3 : II
Dialogue between companies and investors
Institutional investors should encourage direct
contact with companies, including constructive
communication with both senior management and
board members about performance, corporate
governance, and other matters affecting
shareholders’ interest

78. BEST PRACTICES OF
CORPORATE
GOVERNANCE IN
MALAYSIA, UK & USA

79. The UK Corporate Governance Code
United Kingdom
UK incorporated companies listed on the UK Stock
Exchange
5 Principle
Section A: Leadership
Section B: Effectiveness
Section C: Accountability
Section D: Remuneration
Section E: Relations with shareholders

80. Business Roundtable (BRT)
United Stated of America
An association of chief executive officers of leading U.S.
companies with over $6 trillion in annual revenues and
more than 14 million employees.
4 Sections
Duty of the board of directors
Responsibility of management
Responsibility of the board
Responsibility of the corporation

81. Nomination
Committee
Audit
Directors
Committee

82. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATE
1. INDEPENDENCE OF Principle 3 mention Combination of A substantial majority
DIRECTOR that the board should executive and non- of the board's
have policies and executive directors directors
procedures to (and, in particular, should be
ensure effectiveness independent non- independent
of independent executive directors)
directors.
2. THE ROLE OF Rec 3.4 -positions of should not be combining the
CHAIRMAN AND chairman and CEO exercised by the positions of CEO and
CHIEF EXECUTIVE should be held by same individual chairman
different individuals
-the chairman must
be a non-executive
member of the board
3. ELECTION OF Rec 3.2 Non-executive The lead director
DIRECTORS -The tenure of an directors who have should be appointed
independent director served longer than by the independent
should not exceed a nine years should be members of the
cumulative term of subject to annual re- board and should
nine years. election serve for a period
of at least one year.

83. 1. Independence of directors

85. 2. The role of chairman and chief executive

87. 3. Election of directors

88. 3. Election of directors

89. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATE
AUDIT COMMITTEE MCCG 2007 (Part 2 UK CG2012 (C.3.1) US BRT CG2012
BB I) At least 3 at least three
 at least three members members, who
members Independent non- should all be
majority of executive directors independent
whom are At least one directors
independent member of the audit consist of three to
All members of committee has five members
the audit recent and relevant At least one
committee should financial experience member of the audit
be non-executive committee should be
directors. an audit committee
Financially financial expert
literate and at least
one should be a
member of an
accounting
association or body

91. ANNUAL REPORT & ACCOUNTS HSBC HOLDINGS PLC (page 232-233)

94. REQUIREMENTS MALAYSIA UNITED KINGDOM UNITED STATE
NOMINATION MCCG 2012 UK CG2012 (B.2.1 , B.2.2 , US BRT CG2012
COMMITTEE exclusively of non- B.2.4)
executive directors Majority of independent  The corporate
majority of whom non-executive directors governance
must be A separate section of the committee (often
independent. annual report should describe combined with or
the work of the nomination referred to as a
committee, including the nominating
process it has used in relation committee)
to board appointments. should have at least
evaluate the balance of three members
skills, experience,  should be
independence and knowledge composed solely of
on the board and, in the light independent directors
of this evaluation, prepare a
description of the role and
capabilities required for a
particular appointment.

99. Independent Directors Non independent
Do not comply with requirement in US BRT CG2012 which state that the
member of Nominating and Governance Committee should
independent.

100. Duties of Nominating and Governance
Committee

101. BUSINESS
Why Need good Corporate Governance?
STRATEGY
Enhancement of
Reduction of marketability of
risk goods and
services
Stimulation of Improved
performance leadership
Demonstration
Improved access
of transparency
to capital
and social
markets
accountability

103. PAST YEAR
QUESTION

104. Semester 1 (2008/2009)

105. Answers
Two differences between a Unitary (Anglo- Saxon approach) and a Dual
(Two-Tier structure) Board are:
Unitary (Anglo- Saxon approach) Dual (Two-Tier structure)
The governing body is comprised of a The governing body is comprised of
single board two separate boards; supervisory
board and management board
Executive and non-executive directors Executive and non-executive directors
operate in one board operate in separate boards
The committees of the board is The committees of the board is
mandatory or recommended recommended

106. Answer
The advantages and disadvantages for each approach are:
Unitary(Anglo-Saxon approach) Dual (Two-Tier structure)
Advantages: Advantages:
 Quick in making decision  Clear separation between operations and
 Direct contact between e executives and non- management
executives that enables sound monitoring  Balancing the power of Chief Executive
and counselling Officer (CEO) and board Chairman
 Efficient information flow and non-  Higher objectivity and independence,
executives’ access to corporate data particularly in the process of management
 Reduction in possible fraud as wider evaluation, compensation policy
involvement of NED in management  no personal connections enable sound
monitoring and counselling
Disadvantages: Disadvantages:
 Powerful position of Chief Executive Officer  Higher costs of board functioning
(CEO) who holds Chairman function  Poor information flow and non-executives’
 Dependence on CEO policy, lack of access to corporate data
objectivity  lack of direct contact between executives
 Risk of building a coalition and non-executives
 between CEO and outside directors  Risk of dominating the board by majority
(evaluation of board work, resisting to shareholder
takeovers)

108. d) How many time audit committee need to meet with
External auditor without BOD. Why?
The committee should meet with the external auditors
without executive board members present at least twice
a year.
This encourages a greater exchange of free and honest
views and opinions between both parties without the
intervention of executive director or other parties that
have the interest towards the entities.
It shows that independency between audit committee
and executive director. So they can conduct their duty
respectively.
To avoid External Auditor involved in non-audit services

110. e) There have been a number of high profile corporate failures despite
the fact that the financial statement is being annually audited and the
company seems to have good corporate governance. This is because of
i. Auditor conflicts of interest
- Auditing firms, the primary financial "watchdogs" for investors,
were self- regulated. They also performed significant non-audit or
consulting work for the companies they audited.
ii. Boardroom failures
- Board members who either did not exercise their responsibilities
or did not have the expertise to understand the complexities of
the businesses. In many cases, Audit Committee members were
not truly independent of management.