On 30th July 2020, the Securities Commission Malaysia (“SC”) issued new Guidelines on Conduct of Directors of Listed Corporations and Their Subsidiaries (“Guidelines”) to strengthen board governance and oversight in listed issuers and their subsidiaries.
In its press release1, the SC stated that these guidelines:
(a) were issued in line with the SC’s Corporate Governance Strategic Priorities (2017-2020) which seeks to, among others, promote the proper discharge of directors’ fiduciary duties among corporate Malaysia; and
(b) set out guidance on duties and responsibilities of boards in company group structures and requirements for the establishment of a group-wide framework to enable, among others, oversight of group performance and the implementation of corporate governance policies.
To Whom the Guidelines Apply?
These guidelines apply to2:
(a) directors of a listed corporation; and
(b) directors of subsidiaries of a listed corporation;
whether incorporated in Malaysia or otherwise.
Do the Guidelines Apply to Directors of Listed Corporations and their Subsidiaries Only?
The Guidelines apply to directors only but we shall always bear in mind that the legal meaning of directors under the Companies Act 2016 includes3:
(a) the chief executive, the chief financial officer and any other person primarily responsible for the operations or financial management of a corporation, by whatever name called; and
(b) in the case of a corporation formed or incorporated or existing outside Malaysia–
(i) a member of the corporation’s board of directors or governing body; or
(ii) a person occupying or acting in the position of a member of the corporation’s board, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position;
Therefore, the Guidelines also apply to the above company officers even if they are not members of the board of directors of their companies.
What Are the Main Scopes of the Guidelines?
The Guidelines impose three main requirements on directors including:
(a)Conduct Requirements for Directors (which is further divided into conduct of directors and managing of conflict of interests);
(b)Maintaining Proper Records and Accounts; and
When the Guidelines Will Become Effective?
The chapters on Conduct Requirements for Directors and Maintaining Proper Records and Accounts became effective and applicable immediately from 30th July 2020. The chapter on Group Governance will be effective as of 1st January 2021.
The Companies Act 2016
Some parts of the Guidelines are also imposed under the Companies Act 2016 on all company directors in Malaysia:
Where the relevant Guidelines have no corresponding sections under the Companies Act 2016, this means these Guidelines are imposed by the SC at its own initiative. As stated by the SC:
“The new Guidelines take into account the evolving Malaysian corporate governance landscape, lessons learnt from the SC’s regulatory work in enforcing corporate governance breaches and the need to ensure that Malaysia’s framework remains relevant and effective. In discharging his fiduciary duties, a director owes the company duties of disclosure, honesty, candour and the duty to favour the company’s interest over his own.”4
Recent Legal Enforcement Cases
The following are recent enforcement cases involving directors breaching similar duties and legal requirements which are also encapsulated in the Guidelines:
Whilst the Companies Commission of Malaysia has always been entrusted with the legal duty and power to prosecute directors violating the Companies Act 2016, the SC is now empowered to take administrative actions against directors and chief officers of the listed companies and their subsidiaries for violating not only the Companies Act 2016 but also the newly enforced Guidelines.
Such position is welcomed by the Minority Shareholders Watch Group (“MSWG”)11, which stated:
“The fact that one more regulator, that is, the SC, can now take action for a breach of a director’s fiduciary duty is to be welcomed. This just goes to underscore the importance of the fundamental duty of being a director; to act in the best interest of the company…SC can take administrative action under its latest guidelines must be seen as a welcome move.”
Moving forward, the directors and chief officers are reminded again (please see above) that some legal requirements of the Guidelines are new as there are no corresponding sections under the Companies Act 2016 imposing similar requirements. These requirements may therefore have not yet been incorporated into the existing corporate governance framework of their companies.
Listed company directors and chief officers are therefore advised to formulate and implement the required measures for incorporating the effective part of the Guidelines into their company corporate governance framework and structure accordingly.
2 Paragraph 1.02 of the Guidelines
3 Paragraph 2.01 of the Guidelines
4 https://www.sc.com.my/resources/media-releases-and-announcements/sc-issues-new-guidelines-on-conduct-of-directors-of-listed-issuers-and-their-subsidiaries (Datuk Syed Zaid Albar, Chairman of the SC)
11 https://www.theedgemarkets.com/article/sc-issues-new-guidelines-conduct-directors-listed-issuers-and-their-subsidiaries (Mr Devanesan Evanson, CEO of Minority Shareholders Watch Group)
Lee Kin Hing & Ong Sern Tai (firstname.lastname@example.org)