Corporate Governance 2024 Comparisons

Generally, there are seven main forms of corporate/business organisations in Malaysia, namely:

• sole proprietorship;
• general partnership;
• limited liability partnership;
• private limited company (also known as “Sendirian Berhad” or “Sdn Bhd”);
• public limited company (also known as “Berhad” or “Bhd”);
• company limited by guarantee;
• foreign company.

Each type of corporate/business has its own legal and regulatory requirements, as well as advantages and limitations. The choice depends on factors such as the business’s nature, size, goals and owners’ preferences.

In Malaysia, the general principal sources of corporate governance requirements for companies include the following:

• the Companies Act 2016 (“CA 2016”);
• the Bursa Securities Malaysia Berhad’s (“Bursa Malaysia”) Listing Requirements (“Listing Requirements”);
• the Malaysian Code on Corporate Governance (“MCCG”) issued by the Securities Commission Malaysia (“SC”); and
• the Regulatory guidelines and circulars issued by the Companies Commission of Malaysia (“CCM”), Bursa Malaysia and the SC.

Companies with shares that are publicly traded in the local bourse of Malaysia, known as Bursa Malaysia. There are three markets in Bursa Malaysia namely, the Main Market (a prime market for established companies that have met the standards in terms of quality, size and operations), the ACE Market (a sponsor-driven market designed for companies with growth prospects) and the LEAP Market (an adviser-driven market which aims to provide emerging companies, including small and medium-sized enterprises with greater fund raising access and visibility via the capital market). These companies are subject to various corporate governance requirements as set out in the following regulations:

• CA 2016;
• Listing Requirements; and
• MCCG; 

CA 2016 and Listing Requirements

It is mandatory for companies listed on Bursa Malaysia to comply with the CA 2016 and Listing Requirements.

MCCG

The listed companies are encouraged to adopt the principles and recommendations set out in the MCCG as part of their corporate governance practices.

The corporate governance requirements for public listed companies in Malaysia are a combination of mandatory provisions set forth in the Listing Requirements supplemented by the voluntary adoption of principles outlined in the MCCG.

While compliance with specific listing requirements is mandatory for maintaining a listing status on the stock exchange, adherence to the MCCG is encouraged to strengthen corporate governance practices and investor confidence. Under paragraph/rule 15.25 of the Main and ACE Bursa Malaysia Listing Requirements, listed companies must ensure that its board of directors provides an overview of the application of the principles set out in the MCCG, in its annual report.

In addition, listed companies must disclose the application of each practice set out in the MCCG during the financial year, to Bursa Malaysia in a prescribed format and announce the same together with the announcement of the annual report. The listed companies must state in its annual report, the designated website link or address where such disclosure may be downloaded.

In 2023, sustainability and environmental, social and governance (“ESG”) reporting is one of the prominent discussions surrounding corporate governance in Malaysia. With increasing awareness of ESG factors among investors and stakeholders, there is a growing emphasis on sustainability reporting by companies. Malaysian companies may face greater pressure to disclose their ESG initiatives, carbon footprint, diversity and inclusion practices, and efforts to mitigate environmental impact. Developments in sustainability reporting frameworks and guidelines gradually shape corporate governance practices in this area in Malaysia, for example, as can be seen in the recent development of the National Sustainability Reporting Framework (“NSRF”) spearheaded by the Advisory Committee on Sustainability Reporting (“ACSR”) which is chaired by the SC.

The development of the NSRF is intended to improve the availability of reliable, comparable and decision-useful information on material sustainability risks and opportunities of companies through the use of the International Sustainability Standards Board standards as the baseline standard, and to enable the use of other complementary reporting frameworks for example the Global Reporting Initiative, to meet the information needs of different stakeholders as well as to support availability and flow of sustainability information across the supply chain.

Other than ESG reporting, board diversity has always been a hot topic in corporate governance in Malaysia. Public listed companies in Malaysia are mandated to ensure women director as part of the board of directors as required under the Listing Requirements and recommendations in the MCCG. Notwithstanding gender diversity, there are also expectations to enhance board diversity in terms of ethnicity, age and expertise to reflect the diverse perspectives of stakeholders and improve decision-making processes.

Besides, sustainable investment has been a recent global hot topic on corporate governance. The SC launched the principles-based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy), to help drive the country’s climate and sustainability agenda. The SRI Taxonomy presents universal guiding principles for the classification of economic activities that qualify for sustainable investment. The SRI Taxonomy adopts a principles-based approach in a bid to enhance the standardisation and comparability of sustainable investment assets.

These emerging topics reflect evolving expectations and trends in corporate governance, signalling the need for companies in Malaysia to adapt their governance practices to address new challenges and opportunities in the business environment.

The growth of sustainable investments globally has led to the need for more clarity and guidance for market participants in identifying activities that would qualify for sustainable investments. Concerns on the appropriate identification and classification of different types of economic activities, the definition of sustainable investments, as well as the need to mitigate and address the risks of greenwashing, have given rise to the development of sustainable finance taxonomies globally.

In Malaysia, the SC recognised that an SRI Taxonomy for the Malaysian capital market will further accelerate the development of the SRI ecosystem towards achieving national environmental and sustainability objectives. In line with the recommendation of the SC’s SRI Roadmap, a principles-based Sustainable and Responsible Investment Taxonomy (SRI Taxonomy) has been developed to enable the Malaysian capital market and its constituents in identifying economic activities that are aligned with environmental, social and sustainability objectives.

In addition, Bursa Malaysia has introduced enhanced sustainability reporting requirements in the Main Market Listing Requirements (“Main LR”) and the ACE Market Listing Requirements (“ACE LR”), with the aim of elevating the sustainability practices and disclosures of listed issuers. The Main Market listed corporations will now be required to include the climate change-related disclosures that are aligned with the Task Force on Climate-related Financial Disclosures (“TCFD”) Recommendations in their sustainability statements. Meanwhile, the sustainability reporting requirements for ACE Market listed corporations have also been strengthened to align with those of the Main Market. In addition, ACE Market listed corporations are now required to disclose a basic plan to transition towards a low carbon economy (“transition plan”), with regards to climate change reporting.

The enhanced sustainability reporting requirements for Main Market listed corporations will be implemented in a phased manner, beginning with the disclosure of the common sustainability matters for financial year ended on or after 31 December 2023, and culminating with the TCFD-aligned disclosures for the financial year ending (“FYE”) on or after 31 December 2025.

Similarly, ACE Market listed corporations will adopt the enhanced sustainability disclosures on a staggered basis, with disclosures of the prescribed sustainability information taking effect for FYE on or after 31 December 2024, and concluding with disclosures of the basic transition plan for FYE on or after 31 December 2026.

In Malaysia, the governance and management of a company involve various bodies and functions responsible for overseeing its operations, making strategic decisions, and ensuring compliance with legal and regulatory requirements. The principal bodies and functions involved in corporate governance and management in Malaysia include:

• the board of directors of the company (“BOD”);
• the senior management team of the company; and
• the board committees ie, audit and risk management committee, nominating committee and remuneration committee.

Each of the principal bodies involved in the governance and management of a company in Malaysia typically makes decisions within its respective scope of authority. While there is overlap in certain decision-making areas, each body has specific responsibilities and decisions reserved for its purview. The following set out the types of decisions made by each body:

BOD

The BOD which is responsible for setting the company’s strategic direction and long-term objectives, overseeing its management, and safeguarding the interests of shareholders. The BOD’s key decision making include making major decisions, appointing senior management, overseeing financial performance and ensuring compliance with laws and regulations.

Senior Management Team of the Company

The senior management team, led by the chief executive officer or managing director, is responsible for day-to-day operations and implementing the strategic objectives set by the BOD. The management team oversees various functions within the company, including finance, operations, marketing, human resources and legal affairs. The management team reports to the BOD and accountable for achieving corporate goals and deliver value to the shareholders.

Board Committees

Board committees play a vital role in assisting the BOD in a whole in fulfilling their oversight responsibilities and addressing specific areas of governance and risk management. These committees are established in accordance with the Listing Requirements and MCCG, which outline their composition, roles, and responsibilities.

The board committees for a public listed corporations in Malaysia include:

• audit and risk management committee – generally responsible for overseeing financial reporting, internal control and identifying, assessing and mitigating risks that could affect the company’s operations and performance.
• nominating committee – generally responsible for recommending candidates for board positions and evaluating the board’s composition, diversity and performance.
• remuneration committee – generally responsible for setting compensation policies, evaluating executive performance, and determining executive pay packages.

The above principal bodies work together to establish and maintain effective corporate governance practices, uphold ethical standards, and protect the interests of stakeholders in a company. Overall, effective governance structures ensure that decision-making processes are transparent, accountable and aligned with the best interests of the company and its stakeholders.

The following is an overview of the decision-making processes for each body:

BOD

• Preparation of relevant information to the directors - relevant information is distributed to directors before board meetings, including financial reports and proposals.
• Board meetings - decisions are made during formal board meetings, where directors discuss agenda items and deliberate on matters.
• Voting - in cases where decisions require a vote, directors cast their votes based on their assessment of the information presented and their fiduciary duties to act in the best interests of the company and its stakeholders.

Senior Management Team of the Company

• Strategic planning - the management team collaborates to develop strategic plans and operational strategies aligned with the company’s goals and objectives.
• Operational decision-making - day-to-day decisions related to business operations, resource allocation, staffing and customer relationships are made by members of the management team based on their expertise and authority.
• Consultation and collaboration - senior executives may consult with each other, seek input from department heads and collaborate with external advisors or consultants as needed to enhance decision-making processes.
• Communication with the BOD - the management team communicates key decisions, progress and challenges to the BOD through regular reporting and presentations.

Board Committees

• Committee meetings - committees hold regular meetings to discuss specific areas of responsibility, such as audit and risk management, nomination or remuneration.
• Review of information - committee members review relevant information and reports provided by the management, internal auditors, external auditors and other sources to assess the issues under consideration.
• Deliberation and recommendations - committees deliberate on agenda items, ask questions and may seek clarification from management or external experts. They may formulate recommendations or proposals for consideration by the BOD.
• Reporting to the BOD - the chairman of the committee reports the committee’s findings, recommendations and decisions to the BOD during board meetings.

Overall, effective decision-making processes involve careful consideration of relevant information, active participation and collaboration among the relevant bodies, adherence to established procedures and protocols, and a commitment to acting in the best interests of the company and its stakeholders.

In Malaysia, the BOD is responsible for overseeing the management of the company and making strategic decisions to promote its success and protect the interests of shareholders. The following is the general structure of a public listed corporation in Malaysia:

• the chairman of the BOD;
• the executive directors;
• the non-executive directors, which comprises independent and non-independent directors; and
• board committees, ie, the audit and risk management committee, remuneration committee and nomination committee.

The following summarises the example of the general roles and responsibilities associated with the members of BOD:

Chairman of the BOD

• Leads the BOD;
• chairs board meetings, ensuring all agenda items are addressed and decisions are made; and
• facilitates effective communication among board members.

Executive Directors of the Company

• Are part of the company’s management team;
• have operational responsibilities within the company; and
• provide insight and expertise based on their specific areas of responsibility.

Non-executive Directors of the Company

• Provide oversight and governance without being directly involved in the day-to-day operations of the company; and
• participate in board meetings and decision-making processes.

Independent Directors of the Company

• Must meet the specific criteria set forth by regulatory bodies to ensure their independence from the company and its management;
• bring objectivity and impartiality to board discussions and decision-making; and
• play a crucial role in safeguarding the interests of minority shareholders.

Board Committee

• Serve on various board committees, such as the audit and risk management committee, remuneration committee and nomination committee;
• each committee has specific responsibilities related to governance, oversight, and strategic decision-making within its area of focus; and
• committee members contribute their expertise and experience to ensure the effective functioning of their respective committees.

In Malaysia, for a public listed corporation, the composition requirements and recommendations for the BOD, primarily aimed at enhancing corporate governance, ensuring board effectiveness, and protecting the interests of shareholders, are set out in the Chapter 15 of the Listing Requirements and the MCCG.

Composition of the BOD

Under Chapter 15 of the Listing Requirements, it is mandatory to establish committees such as the audit committee and nomination committee whereas under the MCCG, it is encouraged to establish risk management committee and remuneration committee. The aim of establishing these committees is for the purpose of handling specific aspects of corporate governance and oversight.

Gender Diversity of the BOD

As set out in Paragraph 15.02(1)(b) of the Main LR, it is a mandatory requirement for listed companies to adopt gender diversity in the BOD, ie, having at least one female director on their BOD. The MCCG further provides for the adoption of at least 30% female directors.

Numbers and Tenure of the Independent Directors

The number of independent director’s requirements is found under Paragraph 15.02(1)(a) of the Main LR, where it states that a listed company must ensure at least two directors or one third of the BOD of a listed company, whichever is higher, are independent directors.

The recommendations on the tenure of each independent director are found under Principle A, Section II Board Composition of the MCCG, where it states that the tenure of an independent director should not exceed a cumulative term limit of nine years. Upon completion of the nine years, an independent director may continue to serve on the board as a non-independent director. However, if the BOD intends to retain an independent director beyond nine years, it should provide justification and seek annual shareholders’ approval through a two-tier voting process.

Diverse Skills and Expertise of the Independent Directors

Similarly, as stated in the MCCG, the appointment of the BOD is encouraged based on objective criteria, merit and with due regard for diversity in skills, experience, age, cultural background and gender. This may include financial acumen, industry knowledge, legal expertise, technological proficiency and strategic planning capabilities. Companies often assess the collective skills of their board members to ensure they have the necessary competencies to fulfil their roles effectively.

Training and Development

Pursuant to Paragraph 15.08 of the Main LR, the directors, irrespective of independent or non-independent directors of the listed companies, are to attend mandatory training programmes as may be prescribed by Bursa Malaysia, for the purpose of enhancing the directors’ skills and knowledge in managing the companies.

In Malaysia, directors and officers of a company are typically appointed and removed according to the provisions outlined in the company’s constitution (formerly known as memorandum and articles of association), as well as under the CA 2016 and the Listing Requirements for companies which are listed entities.

Appointment and Removal of Directors/Officers of the Company

For private companies, the appointment and removal of a director/officer of the company is usually simple and required in order to comply with the relevant procedures as set out in the company’s constitution and the CA 2016.

As for listed companies, directors are usually appointed or removed by shareholders of the company during general meetings or through written resolutions, in compliance with the company’s constitution, the CA 2016 and the Listing Requirements.

Restrictions and Qualifications on the Appointment of the Directors of the Company

The legal requirements and qualifications for appointment of the director of a company can be found in the CA 2016 where the individual must meet the requirements, amongst others, as follows:

• must be a natural person who is at least 18 years old; and
• is not an undischarged bankrupt.

In Malaysia, rules and requirements regarding the independence of directors and potential conflicts of interest are primarily governed by the CA 2016, the MCCG, and the Listing Requirements.

Definition and Criteria of Independence

The definition of an independent director can be found under Paragraph 1.01 of the Main LR where it means a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgment or the ability to act in the best interests of an applicant or a listed issuer.

Criteria for Independence

Other than what is stated under Paragraph 1.01 of the Main LR, the MCCG further elaborates the criteria in assessing the independence of directors, including:

• not having a significant shareholding in the company or its related corporations;
• not having any significant business relationships with the company, either directly or indirectly;
• not being an immediate family member of any executive officer of the company; and
• directors are required to make annual declarations of their independence, disclosing any relationships or circumstances that may affect their independence.

Disclosure of Interests and Interested Transactions

In the event there is any conflicts of interest or potential conflicts of interest that is arise in the course of the directors’ duties, the director concerned is required to disclose any direct or indirect interests in transactions or arrangements involving the company, its subsidiaries or related parties pursuant to the Sections 219 and 221 of the CA 2016. Further, a director with any interest, direct or indirect, must abstain from board deliberation and voting on the relevant resolution in respect of the related party transaction as provided in the Listing Requirements.

Directors and officers of a company in Malaysia are subject to various legal duties and obligations, primarily outlined in the CA 2016, common law principles and other relevant regulations. These duties are designed to ensure that directors and officers act in the best interests of the company and its stakeholders. The common law duties and statutory duties of directors and officers in Malaysia are, amongst others, the following:

• The duty to act honestly and in good faith, and to prioritise the interests of the company above their personal interests or those of any other party. This duty prohibits directors and officers from using their position or company resources for personal gain or engaging in self-dealing transactions without proper disclosure and approval.
• The duty of reasonable care, skill and diligence where the directors and officers are required to exercise reasonable care, diligence and skill in the performance of their duties. This duty encompasses the responsibility to make informed decisions, to stay informed about the company’s affairs and to actively participate in board meetings and decision-making processes. Directors and officers are expected to apply their skills and expertise to the best of their abilities, seeking professional advice when necessary.
• The duty to act within powers where the directors and officers must act within the powers conferred upon them by the company’s constitution and applicable laws.
• The duty to avoid conflicts of interest where the directors and officers have a duty to avoid conflicts of interest and to disclose any conflicts or potential conflicts that may arise in the course of their duties.
• The duty of disclosure where the directors and officers have a duty to provide accurate and timely disclosure of information to shareholders, regulatory authorities and other stakeholders. This duty encompasses the obligation to ensure that financial statements, annual reports and other disclosures are prepared in accordance with applicable accounting standards and regulatory requirements.

Directors owe their duties primarily to the company itself. However, directors are also responsible for considering the interests of various stakeholders in the course of discharging their duties. In Malaysia, directors owe their duties to:

• the shareholders of the company, as the directors have a fiduciary duty to act in the best interests of the company’s shareholders as a whole;
• the creditors of the company, as the directors have a duty to ensure that the company’s financial affairs are managed prudently and responsibly to safeguard the interests of creditors;
• the customers and suppliers of the company, as the directors should consider the interests of customers and suppliers, ensuring that the company maintains high standards of product quality, customer service and ethical business practices; and
• the community and environment as a whole, as the directors may need to take into account the impact of the company’s operations on the broader community and environment – eg, complying with environmental regulations, promoting sustainability practices, and contributing positively to the communities in which the company operates.

While directors owe their primary duties to the company itself, they are expected to balance the interests of various stakeholders in making decisions that affect the company’s operations, performance, and reputation. This approach reflects the principles of good corporate governance, which emphasise the importance of accountability, transparency, and responsible business conduct, taking into account the legitimate interests of all stakeholders and the long-term sustainability of the business.

Generally, the regulatory authorities in Malaysia such as the SC and Bursa Malaysia have oversight authority over listed companies and their directors. These regulatory authorities can investigate complaints or reports of misconduct by directors and take enforcement actions, including imposing fines, public remand, sanctions or disqualification from holding directorships.

In addition, the CCM is responsible for regulating companies and ensuring compliance with the CA 2016. CCM has the authority to investigate breaches of directors’ duties and impose penalties for non-compliance.

Consequences of Breach

The consequences of breach of directors’ duties can vary and may include the following:

• Civil liability: Directors may be held personally liable for damages or losses resulting from their wrongful acts or omissions. On top of that, directors may face fines, penalties or disqualification from holding directorships imposed by regulatory authorities for violation of laws or regulations.
• Criminal liability: In cases of serious misconduct or fraud, directors may be subject to criminal prosecution, leading to fines, imprisonment or other criminal penalties. Courts may order remedies such as rescission of contracts, restitution, injunctions or specific performance to rectify breaches of duties and mitigate harm to the company or stakeholders.

In addition to breaches of directors’ duties, there are other bases for claims or enforcement against directors or officers for breaches of corporate governance requirements in Malaysia. These are set out below.

Bases for Claims

Breach of statutory duties

Directors and officers may be held liable for breaches of specific statutory obligations imposed by laws such as the CA 2016, securities laws and other relevant regulations. These obligations include requirements related to corporate filings, financial reporting, disclosure of interests and compliance with regulatory requirements.

Breach of fiduciary duties

Directors owe fiduciary duties to the company and its stakeholders, including duties of care and good faith. Breaches of fiduciary duties may give rise to claims for damages, equitable remedies or injunctions by the company, shareholders or other affected parties.

Negligence under the law of tort

Directors and officers may be held liable for negligence in the performance of their duties, resulting in financial losses, harm to the company’s reputation, or violations of laws or regulations. Claims for negligence or breach of duty of care may be brought by shareholders or other affected parties.

Fraud or misrepresentation under the law of tort

Directors and officers may be liable for fraud, misrepresentation or false statements made to shareholders, investors, creditors or regulatory authorities. Claims for fraud or misrepresentation may lead to civil liability, regulatory sanctions or criminal prosecution.

Breach of insider trading regulations

For public listed companies, directors and officers may be subject to claims or enforcement actions for breaches of insider trading regulations, which prohibit trading in securities based on material non-public information. Breaches of insider trading laws may lead to civil penalties and/or criminal prosecution.

Limitation of Directors’ Liability

Regarding the limitation of liability for directors or officers, the CA 2016 allows for the limitation of liability through provisions in the company’s constitution or contractual arrangements, subject to certain limitations and exceptions. The liability of a director or officer may be limited in the following ways:

Indemnification by the company

The company may indemnify directors or officers for liabilities incurred in the course of their duties, subject to the company’s constitution and legal restrictions (subject to no fraud, dishonesty or wilful misconduct by the directors). Indemnification provisions may cover legal expenses, damages or settlements arising from claims or legal proceedings.

Directors’ and officers’ liability insurance

Companies may purchase directors’ and officers’ (“D&O”) liability insurance to protect directors and officers from personal liability for claims arising from alleged breaches of duty, negligence or other wrongful acts or omissions. D&O insurance typically covers legal expenses, damages and settlements, subject to policy terms and conditions.

Statutory protections

The CA 2016 includes provisions that limit the personal liability of directors or officers in certain circumstances, such as business judgment rule protections for decisions made in good faith and with reasonable care or provisions regarding relief from liability granted by the court.

In Malaysia, loans to directors, remuneration fees and benefits payable to directors and officers of a company are subject to various approval requirements and restrictions, primarily governed by the CA 2016 and regulations issued by regulatory bodies such as Bursa Malaysia.

A company is prohibited (i) from making a loan to a director of the company or of a company which by virtue of Section 7 of the CA 2016 is deemed to be related to that company or (ii) entering into any guarantee or providing any security in connection with a loan made to such a director by any other person, except, among others, the prior approval of the company on the resolution in which the purpose of the expenditure and the amount of the loan or the extent of the guarantee or security, as the case may be, are disclosed, as provided under Section 224 of the CA 2016.

Section 225(1) of the CA 2016 provides that subject to the provisions of this section, a company, other than an exempt private company, shall not (a) make a loan to any person connected with a director of the company or of its holding company; or (b) enter into any guarantee or provide any security in connection with a loan made to such person by any other person.

The above subsection shall not apply to, among others, to any loan made to a person connected with a director who is engaged in the full-time employment of a company or its related corporation, as the case may be:

• for the purpose of meeting the expenditure incurred or to be incurred by him in purchasing or otherwise acquiring a home; or
• in accordance with a scheme for the making of loans to employees approved by the company,

as provided in Section 225(2)(c) of the CA 2016.

A company shall not pay a director any remuneration, whether as director or otherwise, free of income tax or otherwise calculated by reference to or varying with the amount of his income tax, or the rate of income tax.

As provided under Section 230(1) of the CA 2016, the fees of the directors, and any benefits payable to the directors including any compensation for loss of employment of a director or former director of a public company or of a listed company and its subsidiaries, shall be approved at a general meeting.

On the other hand, for a private company, Section 230(2) of the CA 2016 provides that the BOD may, subject to the constitution approve the fees of the directors and any benefits payable to the directors including any compensation for loss of employment of a director or former director.

Where a fee is made or other benefits payable to which subsection (2) above applies, members holding at least 10% of the total voting rights and who consider that the payment was not fair to the company, within 30 days after they have knowledge of such payments, may require the company to pass a resolution to approve the payment either by way of a written resolution or at a general meeting.

Contravention of the above section is an offence for which, upon conviction, the company and/or its officers will be liable to imprisonment or fine or to both.

In Malaysia, companies are required to make various public disclosures regarding the remuneration, fees and benefits payable to directors and officers. These disclosures are aimed at providing transparency to shareholders and stakeholders and ensuring accountability in corporate governance.

Section 219(1) of the CA 2016 provides that:

A director of a company shall give notice in writing to the company:

• of the particulars relating to the shares, debentures, participatory interests, rights, options and contracts as are necessary for the purposes of compliance with Section 59 of the CA 2016 by the company;
• of particulars of any change in respect of the particulars referred to above of which notice has been given to the company including the consideration, if any, received as a result of the event giving rise to the change; and
• of such events and matters affecting or relating to himself as are necessary for the purposes of compliance with the requirements of the CA 2016 by the company.

Further, Section 232(1) of the CA 2016 mandated a public company to keep and maintain a copy of every director’s service contract with the company or with its subsidiaries available for inspection. A director’s service contract in relation to a public company means a contract under which:

• a director of the company undertakes personally to perform services, as a director or otherwise for the public company or for a subsidiary of the public company; or
• services that a director of the public company undertakes personally to perform as director or otherwise are made available by a third party to the public company, or to a subsidiary of the public company.

Some other disclosure requirements include:

Directors’ Report

The directors of a company shall prepare for each financial year a directors’ report and such report shall be attached to the financial statements as required under Section 252 of the CA 2016. The report shall state the fees and other benefits distinguished separately, paid to or receivable by them from the company or its subsidiary companies as remuneration for their services to the company or its subsidiary companies, inclusive of all fees, percentages, bonuses, commissions, compensation for loss of office, any contribution in respect of them under any pension or retirement benefit scheme and inclusive of commission paid or payable for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any shares in or debentures of the company or of its holding company or any subsidiary of the company.

Annual Report

In addition, public listed companies are required to disclose detailed information on directors’ and officers’ remuneration in their annual reports. This includes aggregate amounts of remuneration paid or payable to each director and officer such as directors’ fees, salaries, bonuses, commission, benefits-in-kind and other forms of compensation.

Shareholders are considered owners of the company but delegate management to the BOD.

The relationship between a company and its shareholders is primarily governed by the CA 2016, outlining shareholder rights like voting, receiving dividends and attending meetings, while also requiring companies to provide transparency and ensure directors act in the company’s best interests. Additionally, publicly traded companies are subject to additional regulations and disclosure requirements enforced by the SC and Bursa Malaysia to ensure transparency and protect shareholders’ interests. MCCG also provides best practices for companies regarding responsible management and stakeholder engagement.

In general, the business and affairs of a company shall be managed by, or under the direction of the BOD. The BOD has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company subject to any modification, exception or limitation contained in the CA 2016 or in the constitution of the company.

On the other hand, the involvement of shareholders in the management of a company can be seen in Section 195 of the CA 2016 which provides for the members’ rights for management review. In particular, the chairperson of a meeting of members of a company shall allow a reasonable opportunity for members at the meeting to question, discuss, comment or make recommendation on the management of the company as provided in Section 195(1) of the CA 2016. Section 195(2) of the CA 2016 further provides that a meeting of members may pass a resolution under this section which makes recommendations to the BOD on matters affecting the management of the company.

Any recommendation made under subsection (2) above shall not be binding on the BOD, unless the recommendation is in the best interest of the company, provided that:

• the right to make recommendations is provided for in the constitution; or
• it is passed as a special resolution.

Ultimately, the BOD is responsible for making strategic decisions and managing the company’s affairs in the best interests of shareholders.

According to Section 340(1) of the CA 2016, public companies must hold an annual general meeting (“AGM”) annually within six months of their financial year-end and not more than 15 months after the last preceding AGM, to transact the following business:

• laying of audited financial statements and the reports of the directors and auditors;
• appointment and the fixing of the fee of directors;
• any resolution or other business of which notice is given in accordance with the CA 2016 or the constitution; and
• election of directors in place of those retiring.

The CA 2016 prescribes rules regarding such meetings:

• the notice period for convening meetings, which is at least 14 days for private companies or 21 days (for an AGM) for public companies according to Section 316 of the CA 2016;
• the quorum required for the meeting to proceed by virtue of Section 328 of the CA 2016 where it provides the minimum number of members who must be present at the meeting unless the constitution provides otherwise;
• Section 329(2) of the CA 2016 states that if there is no chairman or if the chairman is not present within 15 minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their members to be chairperson of the meeting;
• Section 330(1) of the CA 2016 provides that at any meeting of members, a resolution put to the vote of the meeting shall be decided on a show of hands unless before or on the declaration of the result of the show of hands, a poll is demanded;
• Section 334(1) of the CA 2016 provides that a member of a company shall be entitled to appoint another person as his proxy to exercise all or any of his rights to attend, participate, speak and vote at a meeting of members of the company;
• Section 290(1) of the CA 2016 provides that a resolution of the members or of a class of members of a private company shall be passed either by a written resolution or at a meeting of the members, while Section 2901(2) of the CA 2016 stipulates that a resolution of the members or of a class of members of a public company shall be passed at a meeting of the members; and
• Section 47 of the CA 2016 provides that minutes of all meetings of members and resolutions of members and minutes of all meetings and resolutions of the BOD shall be kept at the registered office.

Shareholders have various bases of claim against the company or its directors, including breaches of fiduciary duties, mismanagement, oppressive conduct and corporate misconduct.

Furthermore, shareholders can bring actions against directors for negligence, fraud or other breaches of duty owed to the company and its shareholders. Section 347 of the CA 2016 provides statutory mechanisms for shareholders to initiate derivative actions on behalf of the company or to seek relief through court proceedings for breaches of their rights or the company’s constitution as well as minority oppression as provided in Section 346 of the CA 2016.

The statutory derivative action under Section 347 of the CA 2016 does not limit it to just minority shareholders, but also included the following:

• a member of a company, or a person who is entitled to be registered as a member of a company;
• a former member of a company if the application relates to the circumstances in which the member ceased to be a member;
• any director of a company; or
• the Registrar, in the case of a company declared under Section 590 of the CA 2016.

Before the above personnel may proceed to take any derivative action, they shall procure the leave of court. However, before they may apply for the leave of court, they shall give 30 days’ notice in writing to the directors of their intention to apply for the leave of Court under Section 347 of the CA 2016.

In deciding whether leave ought to be granted, the Court shall consider two things:

• whether the complainant is acting in good faith; and
• whether it appears prima facie that it is in the best interest of the company for leave to be granted.

Where leave has been granted for an application under Section 347 of the CA 2016, the complainant shall initiate proceedings in Court within 30 days from the grant of leave.

Shareholders in publicly traded companies are subject to disclosure obligations, particularly regarding their shareholdings exceeding certain thresholds, ie, 5% or more voting rights. The substantial shareholder shall give notice to the company in writing if there is a change of his interest in voting shares in the company within three days after the date of the change.

In Malaysia, unless otherwise exempted, it is now mandated under the CA 2016 to disclose the beneficial owner of a company. Section 60B(1) of the CA 2016 provides that every company shall keep a register of beneficial owners of the company and record in the register the particulars of the beneficial owner of the company. The register of beneficial owners of the company shall be kept at the registered office of the company or any other place in Malaysia as notified to the Registrar.

Companies are required to file annual audited financial statements with the CCM to provide a comprehensive overview of the company’s financial position. These financial statements must be audited by independent auditors and presented to shareholders at the AGM within a specified timeframe after the end of the company’s financial year. Additionally, publicly traded companies are subject to additional reporting requirements imposed by Bursa Malaysia, including quarterly financial reporting and disclosure of material information to ensure transparency and investor protection.

Public listed companies are required to disclose their corporate governance arrangements in their annual reports, as mandated under the Listing Requirements and MCCG. In addition, listed companies must disclose the application of each practice set out in the MCCG during the financial year, to Bursa Malaysia in a prescribed format and announce the same together with the announcement of the annual report. The listed companies must state in its annual report, the designated website link or address where such disclosure may be downloaded.

Companies are required to make various filings with the CCM under the CA 2016. These filings include the submission of annual returns, changes in directors or shareholders and audited financial statements. These filings are publicly available through the SSM’s online registry, allowing stakeholders to access information about companies’ corporate structures, activities and compliance status.

Failure to make these filings within the specified deadlines may result in penalties, fines or legal proceedings against the company and its officers.

The CA 2016 provides that an auditor shall be appointed for each financial year of the company. A person shall not be an auditor of the company, among others, if they or their spouse is an officer of the company, a partner, employer or employee of an officer of the company, a partner or employee of an employee of an officer of the company, or a shareholder or their spouse is a shareholder of a corporation whose employee is an officer of the company.

Auditors are responsible for conducting their audit with due care and professional skepticism, obtaining sufficient and appropriate audit evidence, and reporting any material misstatements or irregularities identified during the audit process.

Directors have a fiduciary duty to act in the best interests of the company, which includes ensuring effective risk management and internal controls. The CA 2016, Listing Requirements and MCCG as discussed above mandated directors to establish and oversee a sound risk management framework to enhance corporate governance practices and accountability. This includes identifying risks, implementing controls to mitigate them and regularly reviewing the system’s effectiveness. Directors must also exercise due diligence and prudence in identifying and assessing risks inherent in the company’s business activities, implementing appropriate control measures to mitigate these risks and regularly monitoring and reviewing the effectiveness of internal controls.