Corporate Governance 2025 Comparisons

In Malaysia, there are seven primary forms of corporate or business organisations, each with distinct legal and regulatory requirements, as well as advantages and limitations. These forms include:

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

The choice of structure depends on various factors, including the nature of the business, its size, the objectives of the business and the preferences of the owners.

In Malaysia, the Companies Act 2016 (“CA 2016”) serves as the principal legislation governing the management and operation of companies. It outlines essential provisions regarding the roles and responsibilities of directors, shareholders’ rights and the operational procedures for corporate decision-making. CA 2016 applies to all companies registered in Malaysia, ensuring proper management and accountability.

Beyond CA 2016, corporate governance in Malaysia is also shaped by a robust framework of regulatory and voluntary guidelines. For public listed companies, the listing requirements set by Bursa Malaysia Securities Berhad (“Bursa Malaysia”) (the “Listing Requirements”) are an essential source of corporate governance. These requirements cover areas such as corporate reporting, the composition of the board of directors (the “Board”) and the necessary approvals for major corporate decisions. Adherence to these rules is crucial for maintaining market integrity and protecting investors.

Additionally, the Malaysian Code on Corporate Governance (MCCG), introduced by the Securities Commission Malaysia (SC), offers a set of guidelines that promote transparency, integrity and strong governance practices within companies. While not mandatory, listed companies are expected to comply with the code or provide a rationale for any deviations.

Finally, companies must also reference various guidelines and circulars issued by regulatory bodies such as the Companies Commission of Malaysia (CCM), Bursa Malaysia and the SC. These documents provide updates and detailed instructions, ensuring that companies align with evolving governance standards. Such dynamic governance mechanisms are particularly vital in an era of heightened investor scrutiny, environmental expectations and global business complexity.

Corporate Governance for Publicly Traded Companies

Public listed companies in Malaysia are traded on Bursa Malaysia, which operates three distinct markets: the main market, the ACE market and the LEAP market. The main market is designed for established, large-scale companies, the ACE market targets fast-growing companies and the LEAP market focuses on smaller, emerging businesses, providing them with opportunities for fundraising and greater market exposure. All companies in these markets are required to adhere to specific corporate governance standards.

Regulatory Framework for Corporate Governance

These companies must comply with several key regulations that govern corporate governance. CA 2016 provides the legal foundation, detailing the roles of directors and the rights of shareholders. The Listing Requirements impose mandatory governance obligations on listed companies, such as the composition of the Board, financial disclosures and the establishment of essential committees like audit and risk management. These requirements ensure that companies maintain a high level of transparency and accountability.

Moreover, these regulatory requirements support Malaysia’s broader goals of enhancing investor protection, promoting ethical corporate behaviour and attracting foreign investment through strong governance practices.

In addition, the MCCG offers guidelines for best practices in corporate governance. While adherence to the MCCG is not compulsory, listed companies are expected to either follow its principles or explain any deviations. This flexible approach allows companies to maintain governance standards while providing transparency regarding their corporate practices.

The MCCG’s emphasis on board diversity, stakeholder engagement and sustainability aligns with global trends and reinforces Malaysia’s commitment to responsible business conduct.

As Malaysia looks towards 2025, corporate governance continues to evolve in response to global trends, regulatory developments and heightened stakeholder expectations. The following key issues are poised to take centre stage in the governance landscape.

Environment, Social and Governance (ESG) Compliance

ESG factors are becoming increasingly important in corporate governance. The Malaysian government and regulators, particularly the SC and Bursa Malaysia, are expected to implement more structured frameworks for ESG disclosures and practices among public listed companies. Companies will be expected to provide clear and measurable outcomes related to environmental impact, social responsibility and governance practices. This growing focus on ESG is aligned with global trends and reflects an increasing demand from investors for transparency in these areas.

This focus on ESG aligns with global investor demands and Malaysia’s commitment to sustainable development. Increasingly, investors are prioritising companies with credible ESG credentials, making ESG integration not only a compliance matter but also a competitive differentiator.

Board Diversity and Inclusion

Diversity in the boardroom is another hot topic that will continue to gain traction in 2025. Improving gender diversity and inclusion at the leadership level is becoming more of a priority for regulators and investors alike. Bursa Malaysia and the SC are likely to enhance regulations aimed at increasing diversity, ensuring that the Board is not only more inclusive but also better positioned to navigate the complexities of modern business environments.

Digital Governance and Cybersecurity

With Malaysia’s ongoing digital transformation, digital governance and cybersecurity are becoming increasingly critical. The increase in digital transformations and the rising frequency of cyber threats mean that companies will need to establish robust cybersecurity frameworks and governance structures to protect sensitive data. Regulators are likely to introduce more stringent disclosure requirements on cybersecurity readiness, especially for companies handling sensitive consumer or financial data. Directors are also expected to develop digital literacy and be accountable for overseeing tech-related risks.

Corporate Culture and Ethical Leadership

In response to increasing public scrutiny and global calls for responsible business practices, companies will face increased pressure to demonstrate a values-driven culture. In 2025, further emphasis on creating strong ethical guidelines for companies to adhere to can be expected, with a focus on improving corporate accountability and maintaining trust with stakeholders. This could include more comprehensive training programmes for directors and executives, as well as improved mechanisms for reporting unethical behaviour.

Shareholder Engagement and Activism

Shareholder activism is likely to continue shaping corporate governance practices in 2025, especially as investors seek more influence over company strategies, including decisions related to corporate sustainability, executive compensation and strategic direction. Publicly traded companies may need to enhance their engagement with shareholders to address concerns proactively, fostering a more collaborative relationship between shareholders and management.

As ESG considerations gain prominence in Malaysia’s corporate landscape, companies are now expected not only to integrate these factors into their business practices and disclosures but also to disclose them transparently. This shift aligns with growing stakeholder demands and regulatory emphasis on sustainable, ethical business practices.

Environmental Reporting

Companies are required to disclose the impact of their operations on the environment, including areas such as carbon emissions, energy consumption, waste management and water usage. These ESG disclosures should be aligned with globally recognised standards, including the Global Reporting Initiative and the Task Force on Climate-related Financial Disclosures. In Malaysia, Bursa Malaysia and the SC require public listed companies to clearly detail their strategies for managing environmental risks and reducing their environmental footprint.

Social Reporting

Social reporting focuses on a company’s responsibility towards internal and external stakeholders. Companies are expected to report on key aspects such as labour and employment practices, diversity and inclusion, human rights and community engagement and impact. The Listing Requirements and the MCCG encourage companies to demonstrate their commitment to social responsibility by showcasing efforts to enhance employee welfare, foster diversity and contribute to community development.

Governance Reporting

Governance reporting pertains to a company’s internal structures and decision-making processes. Companies must disclose information regarding the composition of their Board, leadership practices and measures to protect shareholder rights. This includes establishing internal controls, risk management frameworks, anti-corruption measures and whistle-blower policies. The MCCG provides specific governance requirements, including the need for independent directors and the formation of Board committees to uphold sound corporate governance practices and ensure integrity in corporate decisions.

Regulatory Frameworks and Reporting Standards

In Malaysia, companies are expected to adhere to both local and international ESG reporting standards. The Malaysian Financial Reporting Standards (MFRS) and the MCCG provide guidelines for these disclosures. Bursa Malaysia mandates that public listed companies include ESG information as part of their annual reports, ensuring transparency and accessibility for stakeholders. Additionally, many companies voluntarily align their ESG strategies with global initiatives such as the United Nations Sustainable Development Goals (SDGs), thereby demonstrating a broader commitment to global sustainability objectives.

Accountability and Transparency

Transparency is a critical component of ESG reporting. Companies must provide accurate, complete and verifiable information on their ESG performance, including both achievements and areas for improvement. As investor interest in ESG data grows, many companies are now opting for third-party assurance or audits to validate their disclosures and enhance credibility. This practice fosters trust among investors, stakeholders and the general public, reinforcing the company’s commitment to responsible and sustainable business practices.

In Malaysia, corporate governance and management are structured around several key bodies, each with distinct roles and responsibilities to ensure accountability, transparency and long-term corporate success. These functions are governed primarily by CA 2016, the MCCG and, for public listed companies, the Listing Requirements.

The principal bodies and functions involved in corporate governance and management are as follows:

• the Board;
• the senior management team (SMT); and
• Board committees, namely the audit and risk management committee (ARMC), nominating committee (NC) and remuneration committee (RC) (collectively, the “Board Committee”).

In Malaysia, corporate decision-making is structured to ensure accountability, transparency and strategic alignment, with specific responsibilities assigned to key governance bodies. While decision-making is collaborative, certain types of decisions are exclusively reserved for particular bodies to safeguard the company’s integrity and ensure sound corporate governance.

Board

The Board holds ultimate responsibility for the strategic direction, corporate oversight and long-term success of the company. In line with Principle A, Part I of the MCCG, the Board integrates sustainability considerations into corporate strategy and maintains collective accountability for governance outcomes. It oversees senior management, ensures regulatory compliance and fosters ethical leadership and good governance. Key responsibilities include approving major decisions, appointing and removing executives, and supervising financial performance. Directors are also expected to exercise professional scepticism and address evolving ESG risks to maintain stakeholder confidence and achieve long-term resilience.

SMT

The SMT, led by the chief executive officer (CEO) and/or managing director (MD), is responsible for executing the strategic initiatives and operational plans approved by the Board. The SMT manages the company’s core functions, including finance, operations, marketing, human resources and legal affairs, and is accountable to the Board for achieving corporate goals and sustainable value for shareholders. As per Guidance 4.4 of the MCCG, performance evaluations of the Board and SMT should consider their role in addressing sustainability risks and progress on sustainability targets, promoting accountability and ensuring that issues are addressed and shareholders are kept informed of the outcomes.

Board Committee

The ARMC is responsible for reviewing and approving financial statements, overseeing internal and external audits and ensuring effective internal controls and risk management frameworks. The NC focuses on Board composition and effectiveness by making decisions on the nomination, re-election and performance evaluation of directors, as well as succession planning. Meanwhile, the RC is entrusted with developing and reviewing policies related to executive remuneration, assessing executive performance and determining appropriate compensation packages. Together, the Board Committee ensures accountability, transparency and integrity in governance practices.

Collaborative Governance Framework for Effective Decision-Making

While each governance body operates within defined parameters, effective governance is achieved through collaborative efforts. The integration of functions between the Board, SMT and Board Committee ensures that decisions are made in a transparent, accountable and well-informed manner. This cohesive governance framework supports the company’s commitment to regulatory compliance, ethical conduct and long-term value creation for stakeholders.

Board

The Board serve as the apex decision-making body, entrusted with setting the company’s strategic direction, overseeing financial and operational performance and ensuring compliance with legal and ethical standards.

The decision-making process typically begins with the distribution of relevant documentation, including financial reports, strategic proposals and risk assessments, to directors prior to Board meetings to enable informed deliberation.

Formal Board meetings are then convened, during which directors discuss and deliberate on the matters tabled in the agenda. Decisions are made through collective agreement or formal voting, where required, and directors are expected to act with due care, skill and diligence, in line with their fiduciary duties as stipulated in Section 213 of CA 2016. Post-decision, the Board monitors the implementation of its directives, ensuring alignment with the company’s objectives and compliance requirements.

The MCCG emphasises that the Board is collectively responsible for the company’s long-term success and the delivery of sustainable value to stakeholders. Following Principle A, Part I of the MCCG, the Board is to set the company’s strategic aims, ensure necessary resources are in place and oversee management performance.

SMT

Led by the CEO or MD, the SMT is responsible for implementing the Board’s strategic decisions and managing the company’s day-to-day operations.

This includes overseeing key areas such as finance, operations, marketing, legal affairs and human resources. SMT members exercise decision-making authority within their designated functions and operate under policies and limits defined by the Board.

Strategic planning is typically developed through collaboration within the SMT, ensuring alignment with the company’s objectives. For complex matters, SMT members may consult with department heads or external advisors to enhance the decision-making process. Regular communication with the Board is maintained through periodic reporting and presentations to ensure transparency and strategic alignment.

Practice G4.4 of the MCCG recommends that performance evaluations of the Board and the SMT include reviews of their effectiveness in managing material sustainability risks and opportunities. This practice emphasises the importance of integrating ESG considerations into the company’s strategic and operational activities. This aligns with Section 211 of CA 2016, which allows the Board to delegate authority, while holding the SMT accountable for operational execution.

Board Committee

During committee meetings, the committee members review relevant information, which is often provided by management, internal auditors, external auditors or consultants. Committee members deliberate on the issues at hand, request further clarification where necessary and consult experts if appropriate.

Rather than making binding decisions, committees typically formulate recommendations or proposals for the Board’s consideration. These recommendations are then reported to the full Board by the committee chairperson at scheduled Board meetings.

In Malaysia, the structure of a Board is designed to ensure accountability, effective oversight and sound corporate governance. A typical board structure includes:

• the chairperson of the Board (“chairperson”);
• executive directors (EDs);
• non-executive directors (independent and non-independent) (non-EDs); and
• the Board Committee.

Chairperson

The chairperson leads the Board by setting agendas, facilitating meetings and ensuring effective corporate governance. They act as a liaison between the Board and management, uphold high ethical standards and guide strategic decision-making, fostering a culture of accountability and integrity.

EDs

EDs are members of the Board who are also part of the company’s management team. They are involved in the day-to-day running of the business and provide valuable insights based on their specific areas of expertise. Their contributions are vital in shaping and implementing the company’s strategies.

Non-EDs

In contrast, non-EDs do not engage in the daily operations of the company but provide governance and oversight from a different perspective. They participate in Board meetings and decision-making processes, contributing their independent judgment to ensure that the company operates effectively and aligns with its long-term objectives. Independent directors play a critical role in safeguarding the interests of minority shareholders and maintaining the integrity of the Board. Their impartiality and objectivity bring balance to Board discussions and decision-making, particularly when handling matters such as corporate governance and risk management. Independent directors are crucial in enhancing the Board’s transparency and accountability.

Board Committee

The Board Committee comprises specialised subgroups within the Board – ie, the ARMC, NC and RC – established to focus on specific areas of governance and decision-making. Its primary role is to enhance the Board’s efficiency by bringing close attention to complex issues, thereby supporting effective oversight and strategic guidance. Committee members bring specialised expertise to their respective committees, contributing to effective governance and ensuring that the Board functions smoothly in line with best practices. Each Board Committee subgroup is governed by written terms of reference, and they meet regularly to address their specific functions.

In Malaysia, the composition requirements for the Board are primarily guided by the CA 2016, the MCCG and the Listing Requirements. These regulations aim to promote good corporate governance, transparency and accountability. The key composition requirements and recommendations follow.

Number of Directors

Pursuant to Section 196 of CA 2016, a company is required to have a minimum number of directors. In the case of a private company, the minimum requirement is one director, whereas in the case of a public company, the minimum requirement is two directors. Each director must be a natural person who is at least 18 years of age and must ordinarily reside in Malaysia, with a principal place of residence in the country.

Paragraph 15.02 of the Listing Requirements states that a public listed company must ensure that at least one-third of its Board, or a minimum of two directors, whichever is larger, be independent directors. If the number of directors is not divisible by three, the nearest whole number to one-third shall be used to determine the required number of independent directors. In the event of a vacancy on the Board that causes non-compliance with these requirements, it must be filled within three months to ensure compliance.

Gender Diversity of Directors

Pursuant to paragraph 15.02 of the Listing Requirements, it is a mandatory requirement for public listed companies to ensure gender diversity in the Board by appointing at least one female director. In alignment with this, paragraph G5.9 of the MCCG recommends that every Board should comprise at least 30% women directors. Where the representation of women on the Board is below 30%, the Board is expected to disclose the actions it has taken or intends to take, along with a specific timeframe, typically within three years, to achieve the recommended threshold. Boards are also encouraged to review the participation of women in senior management positions to ensure a robust and sustainable talent pipeline for future leadership roles.

Tenure of Directors

Pursuant to Section 205 of CA 2016, in the absence of any specific provision in a company’s constitution (formerly known as memorandum and articles of association) (the “Constitution”), all directors of a public listed company shall retire at the conclusion of its first annual general meeting (AGM). At each subsequent AGM, one-third of the directors shall retire, including those who have been in office the longest since their last appointment or reappointment. Notwithstanding the foregoing, retiring directors are eligible for re-election.

In terms of the tenure of independent directors, Principle A, Part II of the MCCG recommends that such tenure should not exceed a cumulative term limit of nine years. Upon reaching this limit, an independent director may continue to serve only in the capacity of a non-independent director on the Board. If the Board intends to retain the individual as an independent director beyond the nine-year limit, it must provide a clear justification and seek annual shareholders’ approval through a two-tier voting process.

Diverse Skills and Training of Directors

In accordance with the MCCG, the appointment of the Board should be based on objective criteria and merit, considering diversity in skills, experience, age, cultural background and gender. Boards are encouraged to ensure a composition with a broad range of competencies, including financial expertise, industry knowledge, legal proficiency, technological capabilities and strategic planning experience. To maintain effective governance, companies should regularly assess the collective qualifications and competencies of their Board members to ensure the Board is adequately equipped to discharge its responsibilities effectively.

Pursuant to paragraph 15.08 of the Listing Requirements, all directors of public listed companies are required to attend mandatory training programmes, as prescribed by Bursa Malaysia, to enhance their knowledge, professionalism and governance capabilities, thereby enabling them to effectively contribute to the oversight and strategic direction of the company.

Effective from 1 August 2023, all first-time directors of a new listed or transferred company must complete the Mandatory Accreditation Programme (MAP) Part II: Leading for Impact (LIP) within 18 months or appointment or admission to the company. Existing directors of listed companies have been required to complete the LIP within 24 months since 1 August 2023.

In Malaysia, the appointment and removal of directors and officers are governed by CA 2016, the company’s Constitution and, for public listed companies, the Listing Requirements.

Appointment of Directors/Officers

For private companies, the appointment of directors is usually a straightforward process. Pursuant to Section 202(1) of CA 2016, individuals named as directors during a company’s incorporation assume their roles from the date of incorporation. Subsequent directors can be nominated by shareholders via ordinary resolution under Section 202(2) of CA 2016, or by the Board if permitted by the company’s Constitution.

For public listed companies, directors are generally appointed by shareholders at general meetings or via written resolutions, in accordance with the company’s Constitution, CA 2016 and the Listing Requirements. Section 203 of CA 2016 mandates that appointments of two or more directors must be voted on individually, reinforcing transparency and preventing block appointments. Any resolution passed contrary to this is void.

Removal of Directors/Officers

Pursuant to Section 206 of CA 2016, directors of both private and public listed companies may be removed by shareholders through an ordinary resolution. This power applies regardless of any contrary provision in the company’s Constitution or a director’s service contract, thereby preserving shareholder control. However, a special notice is required for any resolution to remove a director or appoint a replacement at the same meeting, and if a director represents a specific class of shareholders or debenture holders, the removal does not take effect until a successor is appointed.

Eligibility and Restrictions

Notably, not all individuals are eligible to be appointed as directors. Under Section 198 of CA 2016, a person is disqualified if he/she is an undischarged bankrupt, convicted of offences involving fraud or dishonesty or convicted under CA 2016. Additionally, a director must be at least 18 years old and of sound mind, and must provide written consent to act. Directors of public listed companies are further restricted to holding no more than five directorships under the Listing Requirements.

In Malaysia, the independence of directors and the management of potential conflicts of interest are primarily governed by CA 2016, the MCCG and the Listing Requirements, as well as the prospectus guidelines issued by the SC (the “Prospectus Guidelines”).

Pursuant to paragraph 1.01 of the Listing Requirements, an independent director is one who is independent of management and free from any business or other relationships that could interfere with the exercise of independent judgment or the ability to act in the best interests of an applicant or a listed issuer.

The MCCG further outlines criteria for independence, which include the absence of:

• any material shareholding or business relationship with the company;
• recent employment or executive positions within the company; and
• close family ties with directors, major shareholders or senior management.

Independent directors are also required to make annual declarations affirming their continuing independence. The MCCG recommends a cumulative tenure limit of nine years for independent directors, beyond which shareholder approval is required for continued service.

In the event where there are any conflicts of interest, Sections 219 and 221 of CA 2016 mandate directors to disclose any direct or indirect interest in contracts involving the company. Pursuant to Section 222 of CA 2016, directors with conflicts are required to abstain from voting or participating in the relevant decision-making process.

For prospectus disclosure, paragraph 8.01 of the Prospectus Guidelines mandates disclosure of any interests directors or substantial shareholders have in entities that compete or transact with the company, including the nature and extent of the interest, and steps taken to address or mitigate the conflict of interest.

The principal legal duties of directors and officers are primarily governed by CA 2016 and grounded in fiduciary and statutory responsibilities. These duties aim to ensure that directors always act in the best interests of the company and uphold proper standards of corporate governance. The core duties include the following.

Duty to Act in Good Faith

Pursuant to Section 213(1) of CA 2016, directors are required to exercise their powers in good faith and in the best interests of the company. This duty mandates honesty and the prioritisation of the company’s interest over personal or third-party interests. Directors must not misuse their position or any confidential information obtained in their capacity, as further outlined in Section 218(1)(e)–(f) of CA 2016.

Duty to Exercise Reasonable Care, Skill and Diligence

Pursuant to Section 213(2) of CA 2016, directors must perform their roles with a reasonable degree of care, skill and diligence. This duty includes staying informed about the company’s operations, actively participating in board meetings and making well-informed decisions. Directors are expected to apply their personal expertise and experience to the best of their ability.

Duty to Avoid Conflicts of Interest

Directors must avoid situations where their personal interests might conflict with the company’s interests. Sections 219 and 221 of CA 2016 impose a duty to disclose any direct or indirect interest in transactions or matters relating to the company. Transparency and integrity are crucial in maintaining stakeholder trust.

Duty to Disclose

Directors are obligated to provide accurate, timely and complete disclosures of information to shareholders, regulators and other stakeholders. This includes ensuring that financial statements, annual reports and other disclosures comply with applicable accounting standards and regulatory requirements.

Duty to Act for Proper Purpose

Directors must exercise their powers only for legitimate and proper purposes, and not for any collateral or improper objectives. This duty ensures that all decisions are aligned with the company’s Constitution and broader corporate objectives, rather than serving personal agendas.

Duty to Implement Adequate Procedures To Prevent Corrupt Practices

Section 17A of the Malaysian Anti-Corruption Commission Act 2009 (MACCA) imposed a duty on directors to ensure that the company establishes an adequate procedure to reasonably protect the directors and the company from liabilities under the MACCA.

Duty to Prevent Exposure to Anti-Money Laundering Activities

Directors must adopt policies and procedures consistent with the principles set out under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), and there is also a duty to keep shareholders and employees abreast of matters under the AMLA. Directors must also remain vigilant against undertaking any business transaction that may be connected with or facilitate money laundering/terrorism financing.

Directors owe their primary legal duties to the company. However, in discharging these duties, directors are also required to consider the interests of various stakeholders. In Malaysia, directors owe their duties to:

• the shareholders of the company – directors have a fiduciary duty to act in the best interests of the company’s shareholders as a whole;
• the creditors of the company – directors shall manage the company’s financial affairs prudently to safeguard creditors’ interest, especially in situations of financial distress or insolvency;
• the stakeholders, including employees, customers and suppliers of the company – directors shall ensure fair labour practices, ensuring product safety and quality, maintaining ethical supply chain standards and contributing positively to community development as recommended by the MCCG; and
• the community and environment – directors are expected to be mindful of the company’s impact on the natural environment, including issues such as resource usage, pollution control, carbon footprint and compliance with environmental regulations.

In Malaysia, enforcement of directors’ duties is primarily the responsibility of the company itself. However, when the company fails to act, the shareholders of the company and regulators such as the CCM can intervene.

Pursuant to Section 347 of CA 2016, a shareholder (or other complainant) may, with the court’s leave, initiate a derivative action on behalf of the company against a director who has breached their duties. This process requires giving 30 days’ written notice to the company’s directors, outlining the intention to apply for such leave.

In addition, regulators also play a significant role, particularly where a breach involves non-compliance with statutory obligations or raises issues of public interest. The CCM has the authority to investigate and prosecute directors for offences under CA 2016, including breaches involving dishonesty, negligence or abuse of power. For public listed companies, enforcement may also be undertaken by the SC or Bursa Malaysia, particularly in respect of contraventions of the Listing Requirements.

The consequences of breaching directors’ duties may be both civil and criminal in nature. A director found in breach may be held personally liable to compensate the company or to account for any gain obtained through misconduct. Where the breach involves fraud, dishonesty or gross negligence, criminal sanctions may apply. Pursuant to Section 213(3) of CA 2016, a director who fails to act in good faith or for a proper purpose shall be subject to a fine not exceeding RM3 million, imprisonment of up to five years or both.

There are various legal avenues through which directors and officers may be held liable for breaches of corporate governance standards, as follows.

Breach of Statutory Duties

Directors and officers may be held liable for breaching statutory duties imposed under CA 2016, securities laws and other relevant regulations. These obligations include the duty to ensure accurate and timely corporate filings, the maintenance of proper financial disclosures and the declaration of directors’ interests as and when required.

Breach of Fiduciary Duties

Directors are bound by fiduciary duties to act in good faith, exercise reasonable care and diligence and act in the best interests of the company. A breach of fiduciary duty may give rise to civil proceedings initiated by the company, shareholders or other affected stakeholders.

Negligence Under Tort Law

Directors and officers may also face liability under the law of tort for negligence in the performance of their corporate duties. This applies when they fail to act with the level of care, skill or diligence that a reasonable person would exercise in similar circumstances. Negligence may arise from poor oversight, lack of proper governance or failure to detect and prevent operational or financial misconduct.

Fraud or Misrepresentation

Directors who engage in fraudulent activities or misrepresentation of information may be subject to legal actions and penalties.

Corrupt Practices

Directors who fail to establish an adequate procedure that can be used to reasonably protect the directors and the company from liabilities under the MACCA may be subject to legal actions and penalties.

Anti-Money Laundering Activities

Directors who fail to adopt policies and procedures in line with the principles set out under the AMLA may be subject to legal actions and penalties.

In Malaysia, there are limited circumstances in which the director or officer’s liability can be limited. The company may indemnify directors or officers for liabilities incurred in the course of performing their duties, provided that the indemnification is permitted under the company’s Constitution and the indemnity does not extend to fraud, dishonesty or wilful misconduct.

Furthermore, directors may also seek directors’ and officers’ (D&O) liability insurance as an added layer of protection, covering liabilities incurred in their official capacity subject to legal limitations. CA 2016 also provides certain statutory protections that may limit the personal liability of directors or officers under specific circumstances. These include the business judgment rule, which protects directors from liability for decisions made in good faith, with reasonable care and in the best interests of the company. Additionally, CA 2016 empowers the court to grant relief from liability where it is satisfied that the director has acted honestly and reasonably.

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

Pursuant to Section 224 of CA 2016, a company shall not make a loan to a director of the company or of a company deemed to be related to that company, nor shall it enter into any guarantee or provide any security in connection with a loan made to such a director by any other person.

By virtue of Section 225 of CA 2016, subject to certain provisions, a company (other than an exempt private company) shall not make a loan to any person connected with a director of the company or its holding company, nor enter into any guarantee or provide any security in connection with a loan made to such person by any other person. Nevertheless, this shall not apply to, amongst others, loans 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, (i) for the purpose of meeting the expenditure incurred or to be incurred by him or her in purchasing or otherwise acquiring a home or (ii) in accordance with a scheme for the making of loans to employees approved by the company.

Pursuant to Section 226 of CA 2016, a company shall not pay a director any remuneration free of income tax, or otherwise calculated by reference to or varying with the amount of his or her income tax or the rate of income tax.

Furthermore, Section 230 of CA 2016 provides that 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 public listed company and its subsidiaries) shall be approved at a general meeting. As for a private company, the Board may, subject to the company’s 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. Contravention of the same constitutes an offence for which, upon conviction, the company and/or its officers will be liable to imprisonment, a fine or both, where the figures relies on the specific contravention.

In Malaysia, companies must publicly disclose details about the remuneration, fees and benefits provided to directors and officers. The purpose of such disclosure is to promote transparency for shareholders and stakeholders, ensuring accountability in corporate governance. CA 2016, the Listing Requirements and the MCCG outline such obligations.

Pursuant to Section 219(1) of CA 2016, a director shall give notice in writing to the company of, inter alia, the following:

• particulars relating to the shares, debentures, participatory interests, rights, options and contracts as necessary;
• the particulars of any change in respect of the particulars aforesaid of which notice has been given, including the consideration, if any, received as a result of the event giving rise to the change; and
• such events and matters affecting or relating to the director as necessary for compliance with CA 2016.

In respect of public listed companies, Section 232(1) of CA 2016 requires 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, where such service contract is defined as, as per Section 231 of CA 2016, a contract under which (i) the 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 (ii) services are performed by a director of the public company or are otherwise made available via a third party to the public company, or to a subsidiary thereof.

Further to the foregoing, a company’s directors are required to prepare a directors’ report for each financial year, which must be attached to the financial statements in accordance with Section 252 of CA 2016. This report must detail, with clear distinction, the fees and other benefits received or receivable by the directors from the company or its subsidiaries as payment for their services.

Furthermore, publicly listed companies must provide comprehensive disclosures in their annual reports regarding the remuneration of their directors and officers pursuant to the Listing Requirements. This includes the total amounts paid or payable to each individual, covering items such as directors’ fees, salaries, bonuses, commissions, benefits-in-kind and other forms of compensation.

Malaysian companies, especially those listed on Bursa Malaysia, are subject to stringent disclosure obligations concerning directors’ and officers’ remuneration. These measures are designed to uphold high standards of corporate governance and protect stakeholders’ interests.

By holding shares, shareholders are essentially the owners of a company, with rights and powers typically outlined in CA 2016 and the company’s Constitution. Public listed companies are additionally subject to regulations and disclosure requirements enforced by the SC and Bursa Malaysia, ensuring transparency and protection of shareholders’ interests. The MCCG further provides best practices for responsible management and stakeholder engagement.

The shareholders possess rights proportional to their shareholdings, such as receiving dividends declared by the company; attending, participating in and speaking at general meetings; and voting on significant matters – ie, appointing and removing directors. While shareholders hold ownership, the day-to-day management of the company is entrusted to the Board and executive officers, as mentioned in the foregoing.

In respect to the publicly available records of shareholders, companies are required to maintain a share register recording the names and shareholdings of all shareholders. Such information is also available in the company’s annual return, For public listed companies, annual reports disclose the substantial shareholders (those holding 5% or more) and shareholders who also serve as directors. Furthermore, the shareholdings of directors are disclosed in reports such as the company’s audited financial statements (AFS). All of the aforesaid can be purchased through the official online platform, known as the CCM e-Info portal (“CCM e-Info”). Shareholders have the right to inspect the register of members without charge and may request copies for a prescribed fee.

In general, shareholders have limited involvement in the day-to-day management of a company. Instead, their role is more focused on oversight, governance and major decision-making, while the day-to-day operations are managed by the Board and executive management.

However, shareholders possess certain rights and mechanisms to influence company management in specific circumstances. Pursuant to Section 195 of CA 2016, the chairperson of a meeting of shareholders shall allow a reasonable opportunity for shareholders, present at the meeting, to question, discuss, comment on or make recommendations concerning the management of the company. Furthermore, a meeting of shareholders may pass resolutions, making recommendations to the Board on matters affecting the management of the company. However, it is to be noted that any such recommendation via resolution shall not be binding on the Board unless the right to make such recommendations is provided for in the company’s Constitution or such recommendations are passed as a special resolution (requiring at least a 75% majority) and is in the best interest of the company.

Even when recommendations meet the foregoing criteria, the Board is obligated to act in the company's best interests. They must exercise independent judgment and are not compelled to follow shareholder recommendations if doing so would conflict with their fiduciary duties.

Pursuant to Section 340 of CA 2016, every public company shall hold an AGM annually, within six months of the company’s financial year end and no more than 15 months after the previous AGM, for the purposes of, inter alia, presenting the AFS and the reports of the directors and auditors, the election of directors and matters notified vide resolution.

Section 290 of CA 2016 allows for a resolution of the members, or of a class of members, of a private company to be passed either by a written resolution or at a meeting of the members. However, certain decisions, such as removal of a director or auditor, cannot be effected through written resolutions of the members and shall be addressed at a meeting of the members.

A meeting of members may be convened by the Board, or by members holding at least 10% of the issued share capital of a company or a lower percentage as specified in the company’s Constitution – or, if the company has no share capital, by at least 5% of the members.

Prior to convening the meeting, a notice of at least 14 days is required for meetings of members of private companies except when passing a special resolution, which may require a longer period as stated in the company’s Constitution. Meetings of members of public companies shall be by way of a notice of at least 21 days for AGMs and 14 days in any other meetings, unless a longer period is stipulated in the company’s Constitution.

Should the members require the directors to convene a meeting of members pursuant to Section 311 of CA 2016, the directors shall call for the meeting within 14 days from the requisition and hold it within 28 days after the date of the notice, as provided under Section 312 of CA 2016. If the directors fails to do so, the members who requisitioned the meeting, or those representing more than half of the total voting rights of all of the members who requested the meeting, may convene the meeting of members, provided that it is held not more than three months after the requisition date.

In respect of the required quorum of the meetings, a minimum of one (in the case of a company only having one member) or two members would be required unless the company’s Constitution requires otherwise (Section 328 of CA 2016). The chairperson shall be the person subjected to the company’s Constitution. If there is no such person, or if the chairperson is not present within 15 minutes after the scheduled time or is unwilling to act, the members present shall elect one of their members to be chairperson of the meeting.

At any meeting of members, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is demanded before or on the declaration of the result of the show of hands by the parties provided under Section 330 of CA 2016, which includes, inter alia, the chairperson or at least three members present in person or by proxy.

In respect of the records of the meeting, by virtue of Section 341 of CA 2016, all resolutions of members passed otherwise than at the meeting of members, the minutes of all proceedings of meetings of members and details provided to the company in accordance with Section 344 of CA 2016 shall be kept for at least seven years from the date of said resolution, meeting or decision, whereby the same shall be kept at the registered office of the company pursuant to Section 47 of CA 2016.

In respect of the available bases of claims against the directors of the company and/or the company itself, examples include breaches of fiduciary duties, oppressive conduct, unlawful appointment of directors and/or mismanagement. Actions in negligence, fraud or other breaches of duty owed to the company and/or its shareholders may qualify as well.

Pursuant to Section 346 of CA 2016, any member or debenture holder may apply to the court if:

• the company’s affairs are being conducted, or the powers of the directors are being exercised, in an oppressive manner in relation to one or more of the members or debenture holders, or in disregard of their interests; or
• the company has or has threatened to act in a way – or some resolution of the members, debenture holders or any class of them has been passed, or even proposed – that unfairly discriminates against or is otherwise prejudicial to one or more of the members or debenture holders.

Section 347 of CA 2016 provides a statutory mechanism for a complainant – which could be a current or former shareholder of a company, any director of a company or the registrar in the case of a company being investigated – to initiate, intervene in or defend a proceeding on behalf of the company with the leave (permission) of the court. This is particularly relevant when the company fails to take action against wrongdoers, such as directors or majority shareholders.

The complainant shall give 30 days’ notice in writing to the directors of his or her intention to apply for the leave of court, and an action should be initiated within 30 days where leave is granted. When deciding whether or not leave ought to be granted, the court will consider whether the complainant is acting in good faith, and whether it is in the best interest of the company. If leave is granted, the action is initiated in the company’s name, and any settlement or discontinuance requires the court’s approval.

This mechanism ensures that the company’s interests are preserved, especially in situations where those in control are unwilling or unable to act against misconduct.

In Malaysia, shareholders of publicly listed companies are subject to specific disclosure obligations.

Substantial Shareholding Disclosure

Under Section 137 of CA 2016, individuals or entities with shareholdings exceeding specific thresholds – namely, 5% or more of the company’s voting rights – are required to notify the company and CCM in writing of any changes to their interest in the company’s voting shares within three days from the date the change occurs. Failure to comply may result in fines of up to RM1 million and additional daily penalties for ongoing non-compliance.

Beneficial Ownership Reporting

The Companies (Amendment) Act 2024 introduced Section 60B into CA 2016, where every company must maintain a register of its beneficial owners and include their details in this register. This register must be kept either at the company’s registered office or at another location in Malaysia that has been notified to the CCM. Companies are required to lodge any changes to this information with the CCM within 14 days of the change. Additionally, companies must retain records of former beneficial owners for seven years after they cease to be beneficial owners. Failure to comply may result in fines of up to RM20,000 and additional daily penalties for ongoing non-compliance.

In Malaysia, companies are subject to annual and periodic financial reporting requirements under CA 2016, with additional requirements for public listed companies under the Listing Requirements.

Private companies shall prepare financial statements and reports, circulate them to members and subsequently lodge them with the CCM. Under Section 68 of CA 2016, companies are required to lodge their annual returns with the CCM within 30 days from each anniversary of incorporation. This requirement does not apply to the calendar year of incorporation.

As for public listed companies, they shall present the financial statements and reports at their AGM and lodge them with the CCM. Similar to private companies, public listed companies must lodge their annual returns with the CCM within 30 days from the each anniversary of incorporation. This requirement is not applicable to the company in the calendar year in which it is incorporated. Extensions for lodgement may be granted by the CCM upon application by private and public listed companies.

In addition to the foregoing, public listed companies shall provide an interim financial report on a quarterly basis. These reports should be prepared as soon as the figures are approved by the Board and must be announced to Bursa Malaysia not later than two months after the end of each quarter of a financial year.

These reporting obligations are designed to ensure transparency, facilitate investor confidence and uphold corporate governance standards in Malaysia.

In accordance with the Listing Requirements and MCCG, public listed companies are required to disclose their corporate governance arrangements in their annual reports. Companies shall provide an overview of the application of the principles set out in the MCCG during the financial year. Additionally, companies must submit a detailed corporate governance report to Bursa Malaysia, outlining the application of each MCCG practice including explanations for any departures and alternative measures adopted to achieve the intended outcomes.

Furthermore, to ensure transparency and ease of access for stakeholders, companies are also required to indicate in their annual report the specific website link or address where the full disclosure can be accessed or downloaded. Beyond compliance, companies are encouraged to view corporate governance disclosure as an opportunity to demonstrate to stakeholders that they have holistic and effective corporate governance arrangements.

In Malaysia, the primary body responsible for company incorporation, registration, regulation and supervision under CA 2016 is the CCM.

Private and public listed companies are required to make various filings with the CCM including, but not limited to, the notification of changes in directors or shareholders, the filing of annual returns, AFS and other disclosures mandated under CA 2016. Filings submitted to the CCM are generally accessible to the public through CCM e-Info.

Failure to comply with the statutory filing obligations within the prescribed timeframes may result in enforcement actions by the CCM, including the imposition of fines, compoundable offences or, in more severe cases, legal action against the company and its officers.

Under Section 271 of CA 2016, a company must appoint an external auditor at each AGM. The appointed external auditor holds office until the conclusion of the next AGM of the company. The person appointed shall not be an auditor of the company if, among other things, he or she, or his or her spouse, is an officer of the company, a partner, an employer or employee of an officer of the company, or a partner or employee of an employee of an officer of the company, or if they have certain shareholding interests that may impair independence.

Paragraph 15.21 of the Listing Requirements stipulates that a public listed company must consider, amongst other things, the following when appointing an external auditor:

• the adequacy of the experience and resources of the accounting firm;
• the persons assigned to the audit;
• the accounting firm’s audit engagements;
• the size and complexity of the company’s group; and
• the number and experience of supervisory and professional staff assigned to the audit.

The auditor must uphold high ethical standards throughout the audit process, ensuring objectivity, integrity and professionalism in their work.

Reviewing the effectiveness of risk management and internal control is an essential part of the directors’ responsibilities and should be performed at least annually. Pursuant to paragraph 15.26(b) of the Listing Requirements, the Board shall include in the company’s annual report a statement detailing the risk management and internal control systems of the public listed company as a group. The directors are required to form their own independent view on the effectiveness of governance and internal controls based on the information and assurances presented to them. In doing so, directors must exercise the standard of care, diligence and skill expected of them in fulfilling their fiduciary responsibilities.

Directors’ responsibilities include:

• ensuring that risk management is embedded across all aspects of the company’s activities;
• determining the company’s risk appetite; and
• overseeing the adequacy of the risk management framework, including the underlying processes, roles and responsibilities, to determine whether they provide reasonable assurance that risks are managed within acceptable parameters and internal control systems.